The Board is elected by our shareholders to oversee their interests as owners of the Company. The Board is the ultimate decision-making authority for the Company, except for those matters that are reserved for, or shared with, our shareholders. The Board appoints and oversees the Company’s senior management, which is responsible for conducting the Company’s day-to-day business operations.
Our Bylaws and Corporate Governance Principles provide the Board with the flexibility to select and revise its leadership structure on the basis of the best interests of the Company and its shareholders at any given point in time. The Board evaluates this structure in connection with the annual appointments to the positions of Chairman of the Board ("Chairman") and Chief Executive Officer ("CEO"). TheAs discussed more fully below, the Board believes that it is currently in the best interests of the Company and its shareholders to combine the Chairman and CEO roles and to appoint a Lead Independent Director annually. In this way, the Company’s shareholders have the benefit of Board leadership by Mr. Keating, ana seasoned executive with extensive day-to-day knowledge of the Company’s operations, strategic plan execution and future needs, as well as a Lead Independent Director who provides Board member leadership. In arriving at its determination, the Board has also considered the fact that the Board consists entirely of independent directors (other than Mr. Keating)Walsh), all having diverse professional and other Board experience.
The following table describes the current members of each committee and the number of meetings held during 2018.2021. Unless otherwise noted, each director served on the committees noted for the entire year.
The Audit Committee is responsible for assisting the Board in fulfilling its responsibility to oversee the Company’s financial reporting and accounting policies and procedures, its system of internal accounting and financial controls, the internal audit function and the annual independent audit of the Company’s financial statements. The committee is also responsible for overseeing the performance, qualifications and independence of the Company’s independent registered public accounting firm (which reports directly to the committee) as well as the performance of the internal audit department. The committee reviews the Company’s business risk assessment framework and identifies principal business risks confronting the Company (including, without limitation, business interruption, crisis management and cyber-security issues) and periodically discusses those risks and exposures with the independent auditor and management, including the internal chief audit executive (however, this committee is not the only Board committee that reviews such business risks), and pre-approves all auditing services and permitted non-audit services to be performed by its independent auditor (which approval authority has been delegated to the committee’s chairperson for certain immaterial items that may arise between meetings, subject to ratification at the committee’s next meeting).
retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, auditing or other matters;matters, as well as the confidential, anonymous submission by the Company’s employees of concerns regarding questionable accounting, auditing or other matters. The committee meets regularly in separate executive sessionsessions with representatives of the independent auditor, the Company's Chief Audit Executive, the Company's Chief Ethics & Compliance Officer and the independent auditor without management present.Company's General Counsel.
The Audit Committee Charter provides that a committee member may not simultaneously serve on the audit committees of more than three companies whose stock is publicly traded (including this committee) unless the Board has provided its consent. No determination to grant such consent is currently required.
The Board recognizes that a thorough, constructive self-evaluation process enhances its effectiveness and is an essential element of good corporate governance. Accordingly, the Corporate Governance Committee oversees an annual self-evaluation process to ensure that the full Board and each of its committees conducts a thorough self-assessment of its performance and solicits feedback for improvement. Feedback on individual director performance is encouraged as part of the process. In addition, the Board and its committees meet regularly in executive session throughout the year to consider areas that may warrant additional focus and attention. The Corporate Governance Committee reviews and reassesses the format and effectiveness of the evaluation process each year and makes changes when considered necessary or appropriate.
In recent years, the Board and committee evaluations have alternated between the use of detailed written questionnairessurveys and one-on-one personal interviews. When one-on-one interviews are conducted at the Board level, the committees generally conduct their self-evaluations utilizing detailed written surveys; and when one-on-one interviews are conducted at the committee level, the
Board generally conducts its self-evaluation utilizing a detailed written survey. In this manner, one-on-one personal interviews are conducted each year, alternating between the Board and committee levels.its committees.
In addition to any other applicable requirements, for a nomination to be properly made by a shareholder, such shareholder must have given timely notice therefor in proper written form to the Secretary of the Company. To be timely, a shareholder's
written notice to the Secretary of the Company must be delivered to or mailed and received at the principal executive offices of the Company, in the case of: (i) an annual meeting, not less than seventy-five (75)ninety (90) days nor more than ninety (90)one hundred twenty (120) days prior to the first anniversary of the date of the immediately preceding year's annual meeting; provided, however, that if the date of the annual meeting is advanced more than thirty (30)twenty-five (25) days prior to or delayed by more than thirty (30)twenty-five (25) days after the anniversary of the preceding year's annual meeting, to be timely, notice by the shareholder must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting is mailed or public disclosure of the date of the annual meeting is first given or made (which for this purpose shall include any and all filings of the Company made with the SEC), whichever first occurs; and (ii) a special meeting called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting is mailed or public disclosure of the date of the special meeting is first given or made (which for this purpose shall include any and all filings of the Company made with the SEC).
A shareholder’s written notice of a proposed nomination must describe (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) (A) the class or series and number of all shares of capital stock of the Company whichthat are owned beneficially or of record by such nominee and any affiliates of such nominee, (B) the person, ifname of each nominee holder of all shares of stock of the Company owned beneficially but not of record by such nominee or any affiliates of such nominee, and the number of such shares of stock of the Company held by each such nominee holder, (C) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge, profit interest or other transaction has been entered into by or on behalf of such nominee, or any affiliates of such nominee, with respect to stock of the Company and (D) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock of the Company) has been made by or on behalf of such nominee, or any affiliates of such nominee, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of stock price changes for, such nominee, or any affiliates of such nominee, or to increase or decrease the voting power or pecuniary or economic interest of such nominee, or any affiliates of such nominee, with respect to stock of the Company (the "Ownership Information"), and (iv) any other information relating to the personnominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"). The shareholder makinggiving the proposalnotice, and the beneficial owner, if any, on whose behalf the nomination is being made must also provide (i) the shareholder's name and record address of the shareholder making the nomination, (ii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the shareholder,Ownership Information, (iii) a description of all arrangements or understandings between the shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (iv) a description of any material interest of such person or any affiliates of such person in the nomination, including any anticipated benefit therefrom to such person or any affiliates of such person, (v) a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the persons identified in its notice, and (v)(vi) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and its rules and regulations. The written notice must be accompanied by a written consent of each proposed nominee to being named or referred to as a nominee and to serving as a director if elected.elected and the completed and signed written representation and agreement required by Section 2(b) of Article III of the Bylaws. The Board may require any proposed nominee to furnish such other information (which may include meetings to discuss the furnished information) as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director.
The Board oversees the Company’s processes to identify, report and address risks across the full spectrum of the Company’s operations. To that end, each of the Board’s committees has been delegated responsibility for evaluating specific risk management
processes and issues resulting therefrom. The Board receives regular reports from these committees and, where appropriate, directs that action be taken. The Board also conducts direct oversight of certain risk management processes.
The Company’s Internal Audit Department reports directly to the Audit Committee, and the Audit Committee regularly reviews with management the Company’s financial reporting and accounting policies, internal controls over financial reporting, internal accounting controls, business risk assessment framework and principal business risks, and Code of Business Conduct compliance. The Audit Committee is also responsible for oversight of (i) the Company’s cyber-security program and management’s plans, programs and policies designed to mitigate cyber-security risks,risks; (ii) the adequacy and as partquality of its annual calendar, the Audit Committee receives regular reports on cyber-security mattersCompany’s internal policies, controls and procedures relating to state, federal and international tax compliance and the information technology control environment fromrecognition, management and monitoring of material tax risks, including without limitation the current status of any pending tax audits and other similar proceedings; and (iii) the adequacy and quality of the Company’s Senior Vice President & Chief Information Officerpolicies and its Executive Directorprocesses for the safe design, development, manufacture, production, maintenance and delivery of IT Security & Governance.the Company’s aerospace products and services. From time to time as the need arises, the committee reviews and discusses with management any incidents involving the Company’s aerospace products or services that result in the loss or destruction of Company aircraft, serious injury or the loss of human life (“Significant Incidents”), and the Company’s participation in, and support of, investigations relating to Significant Incidents conducted by the National Transportation Safety Board or other similar domestic and international investigatory authorities, including the Company’s responses to material findings and conclusions of such investigations.
The Finance Committee reviews the Company’s short- and long-term business plans, certain proposed acquisitions or divestitures (including consideration of any substantial diversification from current business operations), any significant debt/equity issuances and risk management programs from an insurance coverage perspective. The Company’s Vice President - Corporate Risk, Safetylead corporate risk, safety and Environmental Managementenvironmental management officer also reports directly to the committee on a periodic basis. The P&CCompensation Committee reviews and approves the Company’s executive compensation strategies and programs related to annual, long-term and equity incentives and the business unit and corporate performance goals associated therewith, monitors management progress in compliance with stock ownership guidelines, considers and approves all employment-related agreements or termination arrangements with the Company’s executive officers and periodically reviews policies related to management development. The Corporate Governance Committee reviews the Company’s succession plan for the CEO and other top senior management, assures annual evaluation of Board performance, establishes selection criteria for new directors and manages the annual CEO evaluation process. The duties and responsibilities of each of the Board’s committees are more fully described above.
In addition to its consideration of matters brought to its attention by the Board’s committees, the Board conducts direct oversight of various business risk management functions. At each regular meeting, the Board receives senior management reports about current operations as well as the identification of, and progress in addressing, principal business risks. The Board also receives direct reports from management regarding its Enterprise Risk Management program for identification and development of mitigation activities relative to longer-term business risks. In addition to the regular reports provided regarding current principal business risks, the Audit Committee periodically receives summary reports regarding the Enterprise Risk Management program. Annually, the Board reviews and approves the Company’s strategic plan objectives with periodic reviews thereafter regarding progress against that plan and any changes that are being considered. The Board’s oversight role in this area has not affected its approach to the Board’s leadership structure, at least in part due to the level of direct communication that the Board and its committees experience with a variety of management employees involved in operations, finance, human resources, risk management and legal roles.
Our Corporate Governance Principles provide that, as a matter of policy, a significant majority of the Board should consist of independent directors. In order to be deemed independent, our Corporate Governance Principles specify that a director must be free from any relationship which, in the opinion of the Board, would interfere with the exercise of his or her independent judgment in carrying out his or her responsibilities as a director. In addition to establishing its own criteria for independence, the Company complies with the rules promulgated by the NYSE for determining the independence of directors, as well as the Sarbanes-Oxley Act for independence of directors on the Audit Committee and the Internal Revenue Code of 1986, as amended (the "Code") and the Dodd-Frank Act requirements for independence of directors on the P&CCompensation Committee (or any other committee performing an equivalent function).
Based on the review and recommendation of the Corporate Governance Committee, the Board has affirmatively determined that all of the current directors meet the applicable independence standards referenced in the preceding paragraph, except for Mr. Keating,Walsh, the Company’s Chairman, President and CEO. In evaluating and determining the independence of the Company's directors, the Corporate Governance Committee and the Board considered that, in the ordinary course of business,
transactions may occur between the Company and its subsidiaries and certain entities with which some of the directors are or have been affiliated.
In affirmatively determining the independence of each director who serves as a member of the P&CCompensation Committee, the Corporate Governance Committee and the Board considered all factors specifically relevant to determining whether such director has a direct or indirect relationship with the Company or any of its subsidiaries which is material to such director's ability to be independent from management in connection with the director's duties as a member of the P&CCompensation Committee, including, but not limited to the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the Company to such director and whether such director is affiliated with the Company, a subsidiary of the Company or an affiliate of a subsidiary of the Company.
Specific Experience, Qualifications, Attributes and Skills of Current Board Members and Director Nominees
The Board believes that intangible characteristics include a demonstrated understanding of a director’s policy making role while constructively challenging management to seek and attain competitive targets and increase shareholder value; a demonstrated understanding of the Company’s values and strategic plan; capacity for critical thought; maintenance of objectivity in not being unreasonably influenced by personal experience or other Board members in situation analysis; and the independence required for participation on the Board and its committees. In addition, current Board members are evaluated with respect to their active contributions, including regular attendance and preparation for/participation at meetings while maintaining an ongoing understanding of the issues and trends affecting the Company.
The Board of Directors recognizes that one of its most important responsibilities is to ensure excellence and continuity in our senior leadership by overseeing the development of executive talent and planning for the effective succession of our President and Chief Executive Officer and the other senior members of our senior leadership team. This responsibility is reflected in the Company’s Corporate Governance Principles, which provide for an annual review of CEO succession planning and management development, and the Charter of the Corporate Governance Committee, which requires the Committee to review and recommend to the full Board candidates for successor to the Chief Executive Officer and to assure that management has established and maintains a succession planning process for senior executive positions other than the Chief Executive Officer.
In furtherance of the foregoing, the Company’s President and Chief Executive Officer and its SVP & Chief Human Resources Officer provide an annual succession planning and "talent review" reports to the Audit and Compensation Committees, as well as the full Board of Directors. The report to the Corporate GovernanceAudit Committee which summarizescovers the overall compositionCompany's finance group, the report to the Compensation Committee covers the Company's human resources group, and the report to the full Board of ourDirectors covers the Company's senior leadership team, including their professional qualifications, tenure, and work experience.team. The report also identifies internal members ofcovering the senior leadership team identifies those individuals, if any, who are viewed as potential successors to the President and Chief Executive Officer. Succession planning is also regularly discussed in regular executive sessions of our Audit, Compensation and Governance Committees and our full Board of Directors. Our directors become familiar with internal potential successors for key leadership positions through various means, including the annual succession planning reportreports, the annual Human Capital and Organization Report, Board of Directors and committee meetings, and less formal interactions throughout the course of the year.
Additionally, our Board of Directors, with support and recommendations from the Corporate Governance Committee, oversees the succession of its members. To this end, at least once a year, in connection with the annual director nomination and re-nomination process, the Corporate Governance Committee evaluates each director’s performance, relative strengths and weaknesses, and future plans, including any personal retirement objectives and the potential applicability of the Company’s mandatory retirement policy for directors (which is set forth in the Bylaws of the Company). As part of that evaluation, the Corporate Governance Committee also identifies areas of overall strength and weakness with respect to its composition and considers whether the Board of Directors as a whole possesses core competencies in the areas of accounting and finance, management experience with mergers and acquisitions, risk management, industry knowledge, knowledge of technology and
cyber-security, marketing, digital marketing and social media, international markets, strategic vision, compensation, and corporate governance, among others.
We welcome the opportunity to engage with our shareholders to obtain insights and feedback on matters of mutual interest. The Board’s and management’s commitment to understanding the interests and perspectives of shareholders is a key component of our shareholder engagement strategy. We engage with shareholders throughout the year to:
We approach shareholder engagement as an integrated, year-round process involving senior management and our investor relations team. Throughout the year, we meet with analysts and institutional investors to inform and share our perspective and to solicit their feedback on our performance. This includes participation in investor conferences and other formal events and group and one-on-one meetings throughout the year. We also engage with governance representatives of our major shareholders, through conference calls that occur during and outside of the proxy season.
The comments, questions and suggestions offered by our investors were shared with, and discussed by, the relevant committees and the full Board of Directors, and their perspectives will inform the Board’s decision making in 2022 and beyond.
We believe communication between the Board and the Company’s shareholders and other interested parties is an important part of the corporate governance process. Shareholders and other interested parties may communicate with our Board, our Lead Independent Director or any individual director in care of the Corporate Secretary at:
The Corporate Secretary will compile all such communications and forward each item to the individual to whom it is directed or, if the communication is not directed to any particular Board member, to the entire Board. Items that the Corporate Secretary determines are frivolous, unlawful or that constitute commercial advertisements, resumes and other forms of job inquiries, surveys, business solicitations or requestrequests for donations and sponsorships will not be forwarded.
The Corporate Governance Committee reviews the amount and form of compensation paid to our non-employee directors on a biennialan annual basis with the assistance of the independent compensation consultant to the P&CCompensation Committee. Every other year,For each assessment, the independent compensation consultant conducts a review of director compensation levels, practices and trends and delivers a competitive market assessment of director compensation to the committee. Informed by the competitive market assessment, the committee approves aadjustments to the non-employee director compensation program, when and as determined to be appropriate, which isare then ratified and approved by the full Board of Directors. As a matter of strategy, the committee and the full Board strive to set non-employee director compensation levels slightly above the market median to reflect the fact that they remain fixed for a period of two years.
From time to time, special activities may be undertaken by one or more directors at the directionrequest of the Board and, in such cases, additional fees will ordinarilymay be paid. There were no such special activities during 2018.2021.
Directors may defer all, or a portion, of their cash compensation. Interest accrues on such deferrals at the Applicable Federal Long-Term Rate. When a director ends his or her service on the Board, distributions are made either in quarterly installments over a maximum period of 10 years or in a lump sum, based on prior elections made in connection with each deferral. Distributions are made beginning either in the next calendar quarter after the date service ends or on the following January 1 at the prior election of the director.
Code of Business Conduct and Other Governance Documents Available on the Company’s Website
The Board maintains a policy that directors should be regularly exposed to discussion of current developments in their roles and responsibilities as directors, and their attendance at such sessions is reimbursed by the Company. The Board’s policy also encompasses receipt of information regarding developments in the law and conditions in the market segmentsmarkets in which the Company operates. During the past few years, several Board members have participated in seminars sponsored by various national organizations, which have included developments in the law, board/management relationship development and audit-related topics. The Board has also received presentations from outside industry experts regarding developments and trends in certain of the Company’s market segmentsmarkets and other subjects of importance to the Company. In addition, the Board and the Company have an orientation process for new directors that includes background material, meetings with senior management and visits to Company facilities.
The Company’s Code of Business Conduct requires that all business transactions be at arms’ length, negotiated in good faith and based on merit alone. All of the Company’s employees have a responsibility and duty of loyalty to the Company and all business decisions are to be made in the best interests of the Company, which means putting the Company’s interests first. Should a situation arise that would constitute a related party transaction under applicable SEC rules, the Company's Code of Conduct provides that the independent and disinterested Board members will review the propriety of, and approve or disapprove, such
transaction. Under SEC rules, a related party is, or at any time since the beginning of the last fiscal year was, a director, executive officer, nominee for director or five percent shareholder of the Company, or an immediate family member (as defined under applicable SEC rules) of any of the foregoing. A related party transaction is any transaction, arrangement or relationship (or series of transactions, arrangements or relationships) in which the Company or any of its subsidiaries is a participant, the amount involved exceeds $120,000 and a related party had, has or will have a direct or indirect material interest. There were no related party transactions during 2018.2021.
The following table sets forth information about the beneficial ownership of the Company’s Common Stock by each director and director nominee, each executive officer named in the Summary Compensation Table, and all directors and executive officers as a group, as of December 31, 2018.2021. The beneficial ownership percentages have been calculated based on 27,871,79727,860,373 shares of Common Stock issued and outstanding as of such date. Unless otherwise indicated, each person listed has the sole voting and investment power with respect to the shares listed, and the business address of each person is c/o Kaman Corporation, 1332 Blue Hills Avenue, Bloomfield, Connecticut 06002.
Following is information about persons known to the Company to be beneficial owners of more than five percent (5%) of the Company’s outstanding voting securities as of December 31, 2018:2021:
•Stock Ownership Guidelines– Our directors and senior executives are subject to meaningful stock ownership guidelines. During 2021, the applicable guidelines for our CEO and CFO were increased to 5x and 3x their base salaries, respectively. Adherence to these guidelines is monitored by the Committee.Committee on a quarterly basis. See "Stock Ownership Guidelines," below.
•Limited Perquisites – With the elimination of the automobile allowance previously provided to certain of our NEOs and the elimination of the allowance relating to the CEO's personal use of the corporate aircraft, the Company now provides very limited perquisites to our NEOs. See footnote 5 to the "All Other Compensation" column of the Summary Compensation Table, below.
Balanced Compensation Program•Independent Committee – OurThe Compensation Committee, like all of our other Board committees, is comprised solely of independent directors.
•Independent Compensation Consultant – The Committee retains its own compensation consultant who reports directly to the Committee and attends all Committee meetings. During 2021, the Committee engaged Pay Governance LLC to advise the Committee and management on executive compensation program is balanced between annualmatters.
2021 Compensation for our NEOs
Process for Establishing Compensation
The current members of the Compensation Committee are Mses. Pollino (Chairman) and long-term financial goals (including total shareholder return), withBarry and Messrs. Callaway and Higgins. Each of these individuals qualifies as (i) an emphasis on longer-term strategic objectives.
Caps on Incentive Awards – All annual and long-term incentive awards include caps on the maximum payouts that can be achieved“independent director” under the awards.
Recent Say-on-Pay Voting Results
Since 2011, we have asked our shareholders to castrequirements of the NYSE Listed Company Manual, (ii) a non-binding, advisory vote to approve“non-employee director” under Rule 16b-3 of the Exchange Act, and (iii) an “outside director” under Section 162(m) of the Code. The Compensation Committee is responsible for monitoring the performance and compensation paid toof our Named Executive Officers, reviewing compensation plans and administering our incentive plans.
The Compensation Committee operates under a written charter and is responsible for annually recommending, reviewing and approving (or recommending for the Board to approve) the amount and form of compensation of our CEO and our shareholders have overwhelmingly votedother executive officers. In so doing, the Compensation Committee considers recommendations from our CEO in favor ofdetermining executive compensation. Specifically, our CEO recommends base salary increases, annual cash incentive opportunities, and equity award levels and advises the Compensation Committee regarding the compensation program.program’s ability to attract, retain and motivate executive talent. The following chart shows, for each of the last five years, the percentage of the votes cast "FOR" and "AGAINST" these non-binding proposals, excluding broker non-votes and abstentions:
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(*) | Represents the percentage of votes cast "FOR" and "AGAINST" the proposals, excluding broker non-votes and abstentions. If abstentions were to be counted as votes "AGAINST," the percentage of votes cast "FOR" the proposals would have been 80.6%, 93.7%, 98.2%, 98.4% and 99.1% for 2014, 2015, 2016, 2017 and 2018, respectively. |
TheCompensation Committee has interpreted this strong voting recordand exercises the ability to mean thatmaterially increase or decrease the compensation amounts recommended by our shareholders generally support the current design, purposes and direction ofCEO. Our CEO is also involved in our executive compensation program. Accordingly,process by
providing input on the performance criteria applicable to other executives. Our Compensation Committee regularly meets in executive session, with our CEO not in attendance, where decisions are made regarding the CEO's compensation. The Compensation Committee has taken no specific actionsthe authority to modify our executive compensation program as a direct result of these non-binding, advisory votes but, rather, has continued to oversee the program in accordance with its best judgment and stated governing principles.
WE ENCOURAGE SHAREHOLDERS TO REVIEW THIS COMPENSATION DISCUSSION AND ANALYSIS AND THE ACCOMPANYING COMPENSATION TABLES FOR AN EXPLANATION OF OUR APPROACH TO EXECUTIVE COMPENSATION AND A DISCUSSION OF THE CORRELATION BETWEEN THE COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS AND THE COMPANY'S FINANCIAL PERFORMANCE. AS DISCUSSED HEREIN, WE BELIEVE THAT THE COMPENSATION PAID, AND TO BE PAID, TO OUR NAMED EXECUTIVE OFFICERS FOR 2018 BEARS, AND WILL BEAR, A DIRECT AND CORRESPONDING RELATIONSHIP TO THE COMPANY'S FINANCIAL PERFORMANCE.
Our Compensation Philosophy and Objectives
The philosophy underlying our executive compensation program is to provide an attractive, flexible and market-based total compensation program that is tied to the financial performance of the Company and is aligned with the long-term financial interests of our shareholders. We strive to recruit and retain executive officers and other key employees who have the skills and talents that are necessary to deliver sustained financial performance that exceeds the median financial performance of the companies comprising the Russell 2000 Index.
Our fundamental compensation objectives include the following:
Increase shareholder value by motivating talented individuals to achieve the Company’s annual and longer-term financial and strategic operational goals with compensation related to objective benchmarks and Company performance. To accomplish this objective, we use an appropriate mix of pay elements, including salary, annual and long-term incentive opportunities and benefits. Overall, salary and benefits are determined based upon a comparison to the competitive market as reflected by various market surveys of companies that approximate our revenue, while the annual and long-term incentive opportunities are directly related to the Company’s financial performance compared to internal benchmarks and the financial performance of the Russell 2000 Index companies.
Tie a significant percentage of our senior executives’ incentive compensation to the successful execution of strategic operational goals. To accomplish this, we establish objective and measurable goals on an annual and longer-term basis
(generally 3 years) and compare the Company's actual performance to objective, measurable benchmarks. As a result, executives, especially our Named Executive Officers, earn above average compensation when the Company achieves above average financial performance as compared to the Russell 2000 Index of companies.
Require our Named Executive Officers to maintain a significant equity stake in the Company to further align their interests with those of our shareholders. We maintain meaningful stock ownership guidelines, described indesignate one or more detail below, that are designed to align the financial interests of our officers, including our Named Executive Officers, with those of our shareholders. To facilitate the accumulation of equity and the satisfaction of these guidelines, the Committee may elect to pay up to one-third (1/3) of a cash-based long-term incentive award payout in shares of Company stock (and in recent years, the Committee has elected to do so in instances when the recipient was not currently in compliance with the Company's stock ownership guidelines). At the discretion of the Committee, up to the entire amount of such payout may be paid in shares of Company stocksubcommittees, which subcommittees, to the extent requestednot limited by a plan participant.
applicable law or NYSE listing standards, may have and exercise all the powers and authority of the Committee.Protect against inappropriate risk taking. We use caps on potential awards for both annual and long-term incentives. The Compensation Committee also introduced a claw-back policy that is reflected inconsiders the employment agreements of our Chief Executive Officer and our Chief Financial Officer. The Committee intends to establish a broader claw-back policy covering all executive officers once the SEC issues final rules and the NYSE issues listing conditions for the recovery of incentive compensation as required under Section 954input of the Dodd-Frank Act. In addition, the Company’s Insider Trading Policy expressly prohibits directors, executive officers and other designated employees from engaging in short-term or speculative transactions in Company securities, including, among others, (i) short sales of Company securities; (ii) publicly traded options, puts, calls or other similar derivative securities; (iii) hedging or similar monetization transactions, suchCommittee's independent compensation consultant. For 2021, Pay Governance LLC continued to serve as zero-cost collars and forward sale contracts; and (iv) holding Company securities in a margin account or pledging Company securities as collateral for a loan.
While the Committee considers the likely tax consequences of the various components of the Company’s executive compensation program and strives to safeguard the deductibility of executive compensation where possible, tax considerations do not drive the design of our executive compensation program. The Committee believes it is important to retain flexibility to structure the Company’s executive compensation program and practices in a manner that the Committee determines is in the best interests of the Company and its shareholders. The Committee retains discretion to operate the Company’s executive compensation programs in a manner designed to promote varying company goals. As a result, the Committee may from time to time conclude that certain compensation arrangements are in the best interest of the Company and its shareholders and consistent with its compensation philosophy and strategy despite the fact that the arrangements might not be deductible for tax purposes. See "Material Tax and Accounting Implications," below.
Our Compensation Program
We have designed our executive compensation program to achieve the goals described above in a variety of ways with the intention of providing market-competitive pay for a company of our size and incentive opportunities that challenge and correspondingly reward our executives when, and to the extent that, the Company succeeds. First, we use a combination of pay elements, each of which over time is intended to approximate the market median compensation for each position. These elements include base salary, annual cash incentives, longer-term cash and equity incentive opportunities, and benefits. The opportunities afforded by each pay element are determined on the basis of comparison to external compensation data to assure consistency with companies of similar revenue size.
The Committee determines base salary ranges and annual cash incentive and long-term incentive targets for our Named Executive Officers using a biennial market report prepared by the Committee’s independent compensation consultant. During 2021, Pay Governance assisted the Company in its redesign of its executive compensation program, provided the Committee competitive market data regarding the target pay opportunities of the NEOs, informed the Committee on marketplace trends and investor policies, reviewed the Company’s compensation program for non-employee directors as requested by the Corporate Governance Committee and supported the Company in its proxy disclosures. The Committee has assessed the independence of Pay Governance, and it has determined no conflicts of interest exist utilizing the factors established by the NYSE and the SEC.
Throughout the discussion that follows, the phrase "independent compensation consultant" refers to Pay Governance unless otherwise noted.
Competitive Market Data
The Committee historically has used competitive market data as developed by its independent compensation consultant has advisedto determine base salaries, target incentive opportunities (annual as well as long-term) and total compensation opportunities for our NEOs. Pay Governance developed such market data in November 2020 as part of its review of the Company’s pay program and practices in response to our 2020 say-on-pay vote. Pay Governance updated the data in June 2021, which were considered as the Committee thatevaluated proposed changes to the base salaries of our business segment diversity makes identificationNEOs.
Pay Governance developed the market data from two primary sources of information. One source of data used by Pay Governance are several compensation surveys which include hundreds of companies of various sizes from across industries. Data developed from these surveys focus on industrial or manufacturing companies with revenue ranging from $500 million to $1 billion. The other source of data are the proxies of a singlepay benchmarking peer group, which focus on 21 publicly traded companies with revenue comparable to benchmark compensation unworkable, sothe Company (median revenue of $885 million, ranging from more than $300 million to roughly $2 billion). Several criteria were used to select peer companies, including the following: (i) operate in related industries (aerospace/defense, industrial machinery, electrical components, medical equipment); (ii) fall within a reasonable range of the Company’s size in other factors of size and scale (revenue, market capitalization, assets, invested capital, employees); (iii) produce similar types of products; (iv) serve similar end-use markets; and (v) include the Company in their pay benchmarking peer group (or are included in the peer groups used by proxy advisors). Based on those criteria, the following list of 21 companies comprised the pay benchmarking peer group utilized by the Committee and the independent compensation consultant’s market report estimatesconsultant:
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| AAR Corp. | Barnes Group Inc. | Kratos Defense & Security |
| Aerojet Rocketdyne | CIRCOR International, Inc. | Luxfer Holdings PLC |
| AeroVironment, Inc. | Ducommun Incorporated | Mercury Systems, Inc. |
| Albany International Corp. | EnPro Industries, Inc. | NN, Inc. |
| Allied Motion Technologies | ESCO Technologies, Inc. | RBC Bearings Incorporated |
| Altra Industrial Motion Corp. | HEICO Corporation | Regal Rexnord Corporation |
| Astronics Corporation | Hexcel Corporation | TriMas Corporation |
This group serves as the 50th percentilenear-term basis for base salary, target annual cashanalytical comparisons of (i) pay benchmarks for the Company's executive officers (in conjunction with analysis of pay surveys), especially for the CEO and CFO; (ii) incentive awardplan design best practices and the annualized cash value of long-term incentive compensation for each position using information obtained from a variety of sources, including nationally recognized compensation surveys and a number of comparison peer groups, to the extent that such comparison information is available for each position. The independent compensation consultant then compares the final average competitive market rate for each position to the midpointindustry norms; (iii) pay-for-performance alignment; (iv) evaluation of the corresponding salary grade within Kaman's own compensation structuredifficulty of incentive goals; and reports this information to the Committee.
The most recent biennial market report prepared by the Committee's independent compensation consultant used in connection with the determination of the 2018 compensation discussed in this proxy statement was delivered to the Committee in November 2017(v) financial performance benchmarks and in this discussion, it is sometimes referred to as the "2017 Market Report." For purposes of the 2017 Market Report, the independent compensation consultant determined the final average competitive market rate for each position by averaging the national survey data reported by AonHewitt and Equilar, two large independent compensation consulting firms, and the compensation data, if any, reported for each position by companies comprising the peer group compiled by ISS, the peer group compiled by Equilar, the Company's own peer group, which consisted of twenty-two Russell 2000 companies having annual revenues similar to ours, and a mix of aerospace and distribution companies. Annex I to this proxy statement identifies the national
surveys (which were not prepared at the Company’s request) in more detail, along with the number, type and size of the organizations covered by the surveys. The companies comprising each of the peer groups referenced in the 2017 Market Report are also identified in Annex I to this proxy statement.comparisons.
The Committee’s policy isCommittee's compensation philosophy provides that the midpoint of the salary grade foran NEO’s base salary, annual cash incentive targetstarget and the annualized target value of long-term incentives for each positionincentive opportunities should, each, over time, approximate the market median (overall and by individual pay element), as represented by the final average competitive market rate of compensationdata compiled by the independentCommittee’s consultant. The results from Pay Governance’s analyses indicated the total target compensation consultant. As ofopportunities for the 2017 Market Report prepared by the independent compensation consultant, the midpoint of the Kaman salary grade for base salary, annual cash incentive targets (asCompany's NEOs as a percentage of base salary), and total compensation (salary, bonus and long-term compensation) for each of our Named Executive Officers as comparedgroup (prior to the change in CFO) generally approximated market medians with some variance relative to median by individual by element. The exception to this finding was the Company’s CEO, whose pay opportunities were as follows:below market medians.
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SUMMARY OF 2017 MARKET REPORT PREPARED BY THE INDEPENDENT COMPENSATION CONSULTANT |
| | Base Salary | | Target Annual Cash Incentive Award (as a Percentage of Base Salary) | | Target Long-Term Incentive Award (as a Percentage of Base Salary) |
| | Kaman(1) | | Market Median(1) | | Variance | | Kaman(1) | | Market Median(1) | | Variance | | Kaman(1) | | Market Median(1) | | Variance |
| | | | | | | | | | | | | | | | | | |
| President & CEO | $954,980 | | $902,700 | | 5.8% | | 105% | | 100% | | 5% | | 275% | | 269% | | 6% |
| EVP & CFO | $505,670 | | $467,700 | | 8.1% | | 65% | | 70% | | (5)% | | 150% | | 146% | | 4% |
| Segment President - KAG | $505,670 | | $473,600 | | 6.8% | | 65% | | 60% | | 5% | | 150% | | 103% | | 47% |
| Segment President - KIT | $505,670 | | $461,300 | | 9.6% | | 65% | | 72% | | (7)% | | 150% | | 173% | | (23)% |
| SVP & General Counsel | $379,250 | | $394,500 | | (3.9)% | | 55% | | 60% | | (5)% | | 105% | | 134% | | (29)% |
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(1) | All information presented was derived from the independent compensation consultant's 2017 Market Report, which was first presented to the Committee in November of 2017. The Kaman compensation information set forth in the table reflects the midpoint of the Kaman salary grade for each position and the corresponding value of annual and long-term incentive compensation awards at target. It does not purport to show the actual compensation earned by, or paid to, the executives named in the table. The Target Long-term Incentive Award opportunity for the President & CEO position does not include an additional 25% retention award opportunity that has been granted to Mr. Keating since 2014 as an additional inducement to remain in the employ of the Company. |
Our compensation policy also results in a significant percentageComponents of total compensation (excluding benefits) being based on performance. Set forth below is the allocation of total direct compensation (excluding benefits) for target performance for each of our Named Executive Officers for 2018.
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| FIXED VS. PERFORMANCE-BASED COMPENSATION PERCENTAGES |
| | | Fixed | | Performance-Based(1) |
| Name | | Salary (% of Total) | | Annual Cash Incentive (% of Total) | | Long-Term Incentive(2) (% of Total) | | Total Performance Related (% of Total) |
| Neal J. Keating | | 20% | | 20% | | 60% | | 80% |
| Robert D. Starr | | 32% | | 20% | | 48% | | 68% |
| Richard R. Barnhart | | 32% | | 20% | | 48% | | 68% |
| Alphonse J. Lariviere, Jr. | | 27% | | 18% | | 55% | | 73% |
| Shawn G. Lisle | | 39% | | 21% | | 40% | | 61% |
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(1) | Percentages are based on target performance for the annual cash incentive and the long-term incentive elements of compensation. |
| |
(2) | Long-term incentive compensation consists of LTIP awards granted under the 2013 Management Incentive Plan for all NEOs other than Mr. Lariviere, whose long-term incentive compensation consists of an LTIP award, a nonqualified stock option and a restricted share award granted under the 2013 Management Incentive Plan. |
2018 Compensation for our NEOs
The total compensation program for our Named Executive Officers during 2018 wasis comprised of the following elements:
•Base Salaries;salaries;
•Annual Cash Incentive Awards;cash incentive awards;
Long-Term Incentive Awards;•Long-term incentive awards; and
•Retirement and Other Benefits.other benefits.
Each of these elements is discussed in more detail below.
Base Salaries. Historically, the Company aims to pay salaries approximating market medians, appropriately modified to reflect an individual’s skills, experience, achievements and internal comparisons with other executives at their level inside the Company.
While baseThe Committee reviews NEO salaries long-term incentives, and retirementpay positioning at least once per year and adjusts salaries based on several factors, including: current market conditions, Company performance, individual performance, previous experience, management potential, comparisons against market compensation data (including the Company’s pay benchmarking peers), and the Company’s overall merit increase budgets. Merit increase budgets are set annually based on external labor market trends, business performance, inflation and other benefits generally are determined in similar ways for each of our Named Executive Officers, different annual cash incentive awards apply to those Named Executive Officers employed at our Corporate Headquarters (Messrs. Keating, Starr and Lisle), our Aerospace Segment (Mr. Barnhart) and our Distribution Segment (Mr. Lariviere).
Base Salaries
Base salaries are established with reference to the biennial market report prepared by the independent compensation consultant, generally targeting base salaries at the market median with appropriate modifications to reflect the individual’s professional experience and knowledge of his area of management responsibility. The Committee's determination regarding the CEO is subject to the Board’s ratification and approval. Adjustments to base salary are determined as follows: an overall salary increase budget guideline is developed, based on market data and the use of nationally recognized surveys of anticipated salary increases published by Meridian, AonHewitt, Willis Towers Watson and World at Work. Within the overall budget guideline, a narrow range of salary adjustment percentages is then established for each salary grade, with slightly higher percentages for individuals who are below the grade midpoint and slightly lower percentages for individuals who are above the grade midpoint.pertinent factors. Salary adjustments, if any, are then determined within this narrow range based upon an annual performance rating given toby the Named Executive Officer by Mr. KeatingCEO for each NEO and recommended to the Committee.Committee for approval. The performance rating determination is primarily based upon the officer’s level of substantive performance in executing the responsibilities listed in his or her position description.
The Committee’s recommendationCommittee recommends to the Board regardingany adjustment to the CEO’s base salary adjustment is madeof the CEO after consultationconsulting with the Corporate Governance Committee to obtain that Committee'sthe Board's assessment of the CEO’s performance for the year. The Corporate Governance Committee solicits input from all independent directors in connection with itsregarding the CEO’s annual CEO performance assessment.performance.
Amounts paidIn October 2020, the Committee discontinued the temporary salary reductions that had been applied to the Named Executive Officers in respectCompany’s officers and other members of their 2018senior management for much of that year. As a result, base salaries are shownfor all such persons were restored to the amounts in effect immediately prior to the Summary Compensation Table that follows this Compensation Discussion and Analysis. As was done during each year from 2013 through 2017,implementation of the temporary reductions. Consistent with the Company’s prior practice, the Committee atthen reviewed the requestsalaries and pay positioning of the NEOs at its June 2021 meeting.
Based on his review of each NEO’s performance, external market data relating to salaries for executives with similar duties at companies of comparable revenue and the Company’s merit increase budget, the CEO elected to deferrecommended, and the 2018 salary increases for our Named Executive Officers from January 1 to July 1 due to uncertain business conditions. Except for Mr. Keating, the 2018 base salary increases for our Named Executive Officers were relatively modest, all approximating 2.75%, reflecting the fact thatCommittee approved, a 3% increase in the base salaries of mosteach of ourNEO other than Mr. Coogan, who received an increase of 5% in recognition of his performance in his former role as Vice President – Investor Relations and Corporate Development. Mr. Coogan's base salary was reassessed again in July in connection with his promotion to Senior Vice President and Chief Financial Officer, resulting in a 31.6% increase. After giving effect to these increases, base salaries for all NEOs are at or aboveother than Mr. Coogan continued to approximate market medians, the Company’s objective for base salaries. Mr. Coogan's base salary continued to fall below the market median despite the significant increase. The Committee believed this was appropriate because he was only recently appointed to his new positions.
In addition, the Committee reviewed the CEO’s performance during his initial time in the role as reported bywell as his salary position relative to the 2017 Market Report prepared byCEOs in the independent compensation consultant. Mr.Keating received no basepay benchmarking peer group. Based on the Committee’s more than satisfactory evaluation and his salary increase. In lieuremaining well below the median of anthe peer group, it recommended and the Board approved a 12% increase in his baseMr. Walsh’s salary, which still remained below the Committee approved up to $100,000 of direct corporate expense for the non-business usemedian of the corporate aircraft by Mr. Keating during the one-year period commencing as of July 1, 2018 and ending June 30, 2019. See "2018 Compensation for our NEOs – Other Benefits" below.pay benchmarking peer group.
Annual Cash Incentive Awards
OurAwards. As mentioned above, our annual cash incentive award plans remained virtually unchanged in 2021 as our shareholder outreach indicated that shareholders generally viewed them positively and offered no suggestions for improvement. Our annual cash incentives are designed to reward employees for financial and operational performance that drivesdrive shareholder value and to focus our organization on meeting or exceeding designated performance goals. The plans provide employees, including our Named Executive Officers, with the opportunity to earn cash awards based on the degree to which the Company achieves pre-determinedpredetermined performance measures for the year.
The elements used to determine awards include:
•an award opportunity (expressed as a percentage of base salary);
•performance measures (such as adjusted EBITDA or free cash flow);
•a weighting for each performance measure toward the executive’s total award (which cannot exceedequal 100%) in the aggregate); and
•a range of performance goalobjectives (threshold, target and maximum results) for each performance measure (such as an adjusted EBITDA or free cash flow target).measure.
Target Award Opportunities.The Committee establishes the target annual cash incentive award opportunities for each salary grade after considering the independent compensation consultant’s biennialexternal market reportdata, if needed, and receiving the advice of the independent compensation consultant. Positioningconsultant as well as input from the Company’s CEO and CHRO. The Company’s philosophy has been to position target annual cash incentive opportunities at market median levels. Further, actual cash incentives paid to an executive can vary from target opportunities to the degree to which actual results fail to meet or exceed the Company’s target performance objectives. As a result, positioning award targets at the market median reinforces the Committee’s strategy that annual cash incentive payments should exceed target levels only when the Company's actual financial performance exceeds the Company’s targeted objectives.
The 2018 targetPerformance Measures. Each of our NEOs has enterprise-wide responsibilities which extend across all business units and operating segments. As such, their annual cash incentives are based on consolidated financial results tied to performance award opportunitymeasures, weights and performance objectives which are the same for each Named Executive Officer was as follows:
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| | |
Named Executive Officer | | 2018 Target Award
Opportunity Expressed as %
of Actual Base Salary
|
Neal J. Keating | | 105% |
Robert D. Starr | | 65% |
Richard R. Barnhart | | 65% |
Alphonse J. Lariviere, Jr. | | 65% |
Shawn G. Lisle | | 55% |
For 2018, the Committee adopted separate performance measures, performance measure weightings and performance goalsofficer. In contrast, annual cash incentives for corporate participants (i.e., those officers who did not work primarily for one of our two business segments)segment and business unit participants are determined entirely by the results of their operating entity and aim to support the achievement of Company-wide goals. None of the annual cash incentives for segment and business unit participants (i.e.,are based on consolidated results, reinforcing accountability for performance that is most within those officers who did work primarily for one of our two business segments). Messrs. Keating, Starrindividuals’ control and Lisle were corporate participants and Messrs. Barnhart and Lariviere were business segment participants.influence. The performance measures for our NEOs for 2021 were as follows, equally weighted and unchanged from the performance measure weightings and performance goalsmeasures used for each are discussedcorporate executives in more detail below, together with the level of achievement or satisfaction of each performance goal and the resulting annual incentive award payout for each of our Named Executive Officers.2020:
•Adjusted Consolidated EBITDA: net earnings before interest, taxes, depreciation and amortization and certain items that are not indicative of the operating performance.
•Adjusted Consolidated Free Cash Flow: “net cash provided by (used in) operating activities” less “expenditures for property, plant & equipment,” adjusted for certain items that are not indicative of the operating performance.
Adjusted Consolidated EBITDA focuses on the performance of the Company’s core operations, while Adjusted Consolidated Free Cash Flow is an important indicator of the Company’s ability to finance various capital decisions and fund continuing operations. The Committee believes these two factors and their weightings appropriately balance the need to improve operating results and manage cash flow during the Company’s on-going transformation.
For purposes of determining the level of achievement or satisfaction of the Company's financial performance measures for the Company and each of its business segments,the foregoing performance measures, the Committee approved certain specified adjustments or modifications to the calculation of eachCompany performance measure that were applicable to all participants. Such modifications included, among others, the exclusion or inclusion of the impact to the Company's financial results of the following items, whichever would produce the higher award: the effect of changes in tax law or accounting principles; the dilutive effect on earnings per share that results from any increase in the number of shares used in the calculation of diluted earnings per share attributable to any outstanding convertible debt securities and any related bond hedge and warrant transactions; the effects of changes in applicable foreign currency exchange rates relating to non-U.S. denominated financial performance; costs and losses associated with restructuring, business consolidations, severance, management realignments or closures of the Company or any of its subsidiaries, affiliates and product lines; acquisition and divestiture due diligence and integration costs and the adverse effects of acquisitions and divestitures, including spin-offs; effects of losses generated by divested operations and losses associated with discontinued business operations or product lines; the impact of any transaction costs and accounting charges incurred in connection with the issuance equity or issuance of or refinancing of new or existing debt securities and facilities, including but not limited to the settlement or unwinding of existing convertible bond hedge instruments and outstanding warrants; the impact of any costs and accounting charges in respect of pension curtailment adjustments attributable to pension expense charged to company contracts with the U.S. Government, as determined under U.S. Cost Accounting Standard 418, following the freeze of future benefit accruals under the Pension Plan; charges associated with environmental matters; asset write-downs or impairments, including, but not limited to, goodwill and other intangible assets; new capital investments and related depreciation; litigation or claim judgments or settlements including contract claim settlements with customers and suppliers; the impact of charges in connection with contract terminations, including but not limited to, write-off of inventory, tooling, equipment and non-recurring costs; any impact resulting from the delay in cash receipts relating to domestic and foreign JPF orders where there is no underlying dispute as to payment; and any item of an unusual nature or of a type that indicates infrequency of occurrence, or both. The Committee also retained the ability to increase, reducedecrease or eliminate the amount of any award that would otherwise be payable as a result of the foregoingthese adjustments or to further adjust any award due to special events or unforeseen circumstances. Because Adjusted Consolidated EBITDA and Adjusted Consolidated Free Cash Flow include the adjustments or modifications approved by the Committee, they are deemed to be non-GAAP financial measures. They have not been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and are not based on any standardized methodology prescribed by U.S. GAAP. As a result, they are not necessarily comparable to similarly titled measures presented by other companies. A description of the adjustments used in the determination of these non-GAAP financial measures is set forth in Appendix A, together with a reconciliation to the most directly comparable financial measures calculated under U.S. GAAP.
Corporate Named Executive Officers.
The 2018following table summarizes the weightings of the performance measures used to determine the annual cash incentive awards for our NEOs in 2021:
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2021 ANNUAL INCENTIVE AWARDS TARGET PERCENTAGES, PERFORMANCE MEASURES AND WEIGHTINGS(1) |
Executive | Target Award
as a
Percentage of Salary | Adjusted Consolidated EBITDA | Adjusted Consolidated Free Cash Flow |
| Ian K. Walsh | 100 % | 50 % | 50 % |
James G. Coogan(2) | 60 % | 50 % | 50 % |
Robert D. Starr(3) | 65 % | 50 % | 50 % |
| Russell J. Bartlett | 60 % | 50 % | 50 % |
| Shawn G. Lisle | 55 % | 50 % | 50 % |
| Kristen M. Samson | 40 % | 50 % | 50 % |
(1) All target award percentages assume the listed individuals were employed by the Company for the full year in the positions giving rise to the target award percentages listed, and all such individuals were so employed except for Messrs. Keating,Coogan and Starr.
(2) Mr. Coogan was appointed Senior Vice President and Chief Financial Officer as of July 8, 2021; his annual cash incentive award is pro-rated to reflect his actual time in office. Prior to becoming Chief Financial Officer, Mr. Coogan served as Vice President, Investor Relations and Business Development and his target award as a percentage of salary was 40%.
(3) Mr. Starr ceased to be the Chief Financial Officer of the Company on July 8, 2021, although he continued to serve as an Executive Vice President through July 31, 2021. On July 8, 2021, the Committee approved Amendment No. 1 (the “Amendment”) to Mr. Starr’s Executive Employment Agreement, dated as of November 18, 2014, by and Lisle were determined by comparingbetween the Company and Mr. Starr (the “Executive Employment Agreement”). The Amendment modifies the compensation and severance benefits that Mr. Starr was entitled to receive upon the termination of his employment and the fulfillment of all necessary conditions precedent set forth in the Executive Employment Agreement. In brief, the Amendment provides that the lump-sum severance benefit payable to Mr. Starr upon the termination of his employment was based, in part, on a multiple of his current target bonus rather than the most recent annual bonus actually paid.
Performance Goals/Objectives. The Committee reviews and approves the financial targets for each performance metric considering the Company’s degreeprofit plan for the year, the state of achievementthe industry and any other external economic factors which may affect overall Company performance. Those targets are meant to be reasonably demanding and support paying bonuses equal to 100% of target opportunities which reflect market median level and can produce median cash compensation (salary + bonus) if earned. They were established and approved at the Committee’s meeting in February 2021.
Further, the Committee approves maximum performance goals to motivate executives to exceed the Company’s profit plan or target goals. Conversely, it sets a threshold level of performance that must be achieved to pay any bonus, emphasizing the importance of achieving target goals. Failure to achieve this threshold level of performance generally results in no award. Maximum cash incentive awards are earned for results which equal 125% of target goals. Threshold awards normally have been paid for results equal to 70% of target performance. This trade-off was considered reasonable because of the level of performance above target required to achieve maximum awards, and because it reduces potential risk-taking. Nevertheless, the award threshold was increased to 75% in 2021 in connection with respectthe comprehensive review of the Company's executive compensation program. Interpolation is used to determine the payouts for results between threshold, target and maximum.
The following table shows the performance goals for each performance measure, the financial performance in 2021 for each performance measure and the level of target opportunity earned for each measure (independent of the weights assigned to each measure to determine individual awards):
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| 2021 ANNUAL INCENTIVE AWARD CALCULATIONS |
Level of
Achievement | Target
Award
Earned | Adjusted Consolidated EBITDA | Adjusted Consolidated Free Cash Flow |
| Threshold | 50% | $70.4M | $25.3M |
| Target | 100% | $93.8M | $33.7M |
| Maximum | 200% | $117.3M | $42.1M |
2021 Results(1) | $98.1M | $66.2M |
| % Target Award Earned | 104.6% | 196.2% |
(1) Represents adjusted results calculated in accordance with the plan’s original authorization. Please see Appendix A for a list of Committee-approved adjustments for 2021 and a reconciliation to the following performance factors, each or which had the weighting indicated:corresponding GAAP metrics.
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(2) Performance Measure | | | Weighting |
Adjusted Consolidated EBITDA vs. Target | | | 50% |
Adjusted Consolidated Free Cash Flow vs. Target | | | 50% |
Company performance at 70%75% of target is required to earn a threshold payout of 40%50% for each performance measure; Company performance at 100% of target earns a 100% payout; and Company performance at 140%125% of target generates a maximum payout of 200%. Interpolation is used to determine the payouts for Company financial performance between between these amounts.
(3) See discussion below for the actual award percentages actually approved by the Committee.
The following table shows2021 target goals for Adjusted Consolidated EBITDA and Adjusted Consolidated Free Cash Flow reflect the relationship betweenimpact on pandemic on the Company's 2018Company’s operations, it’s ongoing transformation and management’s efforts to set reasonably demanding incentive targets. The Company’s Adjusted Consolidated EBITDA target for 2021 was comparable to last year’s target objective and represented a considerable improvement over the Company’s results for 2020 ($76.23M). In comparison, our adjusted financialconsolidated free cash flow goals were measurably lower than the target for 2020 yet represented a substantial increase from last year’s actual performance ($15.40M). Overall, the Committee and eachmanagement believed these performance measure, the degreegoals were appropriately challenging to which each performance measure was attained, and the resultingwarrant target annual incentive payoutpayouts based on the current economic environment.
2021 Annual Incentive Award Payouts. Actual adjusted consolidated results for eachthe Company exceeded target goals for both our performance metrics. Adjusted Consolidated EBITDA for 2021 was $98.1M, which was slightly above our target objective and a 29% improvement over last year’s results. Similarly, the Company’s Adjusted Consolidated Free Cash Flow rebounded sharply in the year because of our corporate Named Executive Officers.
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| 2018 ANNUAL INCENTIVE AWARD CALCULATIONS FOR CORPORATE NEOs |
| | 2018 Company Performance(3) | | Financial Targets | | Percentage of Factor Earned | | Weighting Factor | | % Of Target Award(4) |
Adjusted Consolidated EBITDA(1) | $137.4 million | | $167.2 million | | 69.4% | | 50% | | 34.7% |
Adjusted Consolidated Free Cash Flow(2) | $158.2 million | | $156.1 million | | 103.4% | | 50% | | 51.7% |
Resulting Corporate Performance Award Factor | | 86.4% |
| |
(1) | Adjusted Consolidated EBITDA is defined as net earnings before interest, taxes, depreciation and amortization and certain items that are not indicative of the operating performance. |
| |
(2) | Adjusted Consolidated Free Cash Flow is defined as “net cash provided by (used in) operating activities” less “expenditures for property, plant & equipment,” adjusted for certain items that are not indicative of the operating performance. |
| |
(3) | In accordance with the original authorization of the 2018 annual incentive awards, the adjusted Company performance shown in the table reflects the following adjustments to our reported financial results: Consolidated EBITDA was favorably adjusted by $8.2 million for acquisition due diligence and corporate development costs, unplanned one-time bonuses to employees earning less than $70,000 as a result of The Tax Cuts and Jobs Act, and restructuring costs. Consolidated free cash flow was favorably adjusted by $25.7 million for the aforementioned adjustments to EBITDA plus unplanned contributions to the qualified pension plan. |
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(4) | This column represents the product of the Percentage of Factor Earned figures multiplied by the Weighting Factor. |
The following table showsseveral management initiatives, producing $66.2M in Adjusted Consolidated Free Cash Flow. This result exceeded the calculation ofCompany’s maximum objective for the 2018year. Based on these results, the Committee approved annual cash incentive awards earned bypayouts equal to 159.2% of each NEO’s target incentive opportunity. This result is significantly better than last year’s payout and reflects the substantial improvement in the results related to our Corporate Named Executive Officers, together with the resulting percentages of base salary such awards represent:
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| Named Executive Officer | | 2018 Base Salary | | Target Award % | | Annual Incentive Award Perf. Factor | | 2018 Annual Cash Incentive Award | | Incentive Award Expressed as a Percentage of Base Salary |
| Neal J. Keating | | $1,000,000 | | 105% | | 86.4% | | $907,200 | | 90.7% |
| Robert D. Starr | | $484,000 | | 65% | | 86.4% | | $271,814 | | 56.2% |
| Shawn G. Lisle | | $400,725 | | 55% | | 86.4% | | $190,425 | | 47.5% |
Aerospace Segment Named Executive Officer. The 2018 annual cash incentive award for Mr. Barnhart, President of our Aerospace segment, was calculated based 25% on corporatetwo consolidated performance and 75% on predetermined financial goals for the Aerospace segment that were recommended by our CEO and approved by the Committee. The financial performance goals and their weightings for the Aerospace segment were as follows:metrics.
|
| | | |
Financial Performance Goal | | | Weighting |
Adjusted Segment EBITDA vs. Target | | | 33% |
Adjusted Segment Sales vs. Target | | | 33% |
Adjusted Segment Free Cash Flow vs. Target | | | 34% |
Company performance at 70% of target is required to earn a threshold payout of 40% for each performance measure; Company performance at 100% of target earns a 100% payout; and Company performance at 140% of target generates a maximum payout of 200%. Interpolation is used to determine the payouts for Company financial performance between between these amounts.
The following table shows the relationship between the Aerospace segment's 2018 adjusted financial performance and each performance measure, the degree to which each performance measure was attained, and the resulting Aerospace segment performance award factor for Mr. Barnhart.
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| 2018 ANNUAL INCENTIVE AWARD CALCULATIONS FOR AEROSPACE NEO |
| | 2018 Segment Performance(4) | | Financial Targets | | Percentage of Factor Earned | | Weighting Factor | | % Of Target Award(5) |
Adjusted Segment EBITDA(1) | $121.2 million | | $143.5 million | | 69.0% | | 33% | | 22.8% |
Adjusted Segment Sales(2) | $736.2 million | | $776.3 million | | 89.6% | | 33% | | 29.6% |
Adjusted Segment Free Cash Flow(3) | $139.1 million | | $138.4 million | | 101.2% | | 34% | | 34.4% |
Resulting Aerospace Performance Award Factor | | 86.8% |
| |
(1) | Adjusted Segment EBITDA is defined as segment operating income, before depreciation and amortization and certain items that are not indicative of the operating performance. |
| |
(2) | Adjusted Segment Sales is defined as "segment net sales, including sales between segments." |
| |
(3) | Adjusted Segment Free Cash Flow is defined as “segment net cash provided by (used in) operating activities” less “expenditures for property, plant & equipment,” adjusted for certain items that are not indicative of the operating performance. |
| |
(4) | In accordance with the original authorization of the 2018 annual incentive awards, the adjusted Company performance shown in the table reflects the following adjustments to our reported financial results: Segment EBITDA was favorably adjusted by $2.3 million for unplanned one-time bonuses to employees earning less than $70,000 as a result of The Tax Cuts and Jobs Act and restructuring costs. Segment free cash flow was favorably adjusted by $13.4 million for the aforementioned adjustments to EBITDA, the segment's share of unplanned contributions to the qualified pension plan, and acquisition and corporate development costs. |
| |
(5) | This column represents the product of the Percentage of Factor Earned figures multiplied by the Weighting Factor. |
Since 75% of Mr. Barnhart's annual cash incentive award was based on Segment performance and 25% was based on corporate performance, Mr. Barnhart's aggregate annual cash incentive award factor was 86.7% (.75 x 86.8% + .25 x 86.4%). The following table shows the calculation of the 2018 annual cash incentive award earned by Mr. Barnhart, together with the resulting percentage of base salary such award represents:
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| | | | | | | | | | |
| Named Executive Officer | | 2018 Base Salary | | Target Award % | | Annual Incentive Award Perf. Factor | | 2018 Cash Incentive Award | | Incentive Award Expressed as a Percentage of Base Salary |
| Richard R. Barnhart | | $462,375 | | 65% | | 86.7% | | $260,571 | | 56.4% |
Distribution Segment Named Executive Officer. The 2018 annual cash incentive award for Mr. Lariviere, President of our Distribution segment, was calculated based 25% on corporate performance and 75% on predetermined financial goals for the Distribution segment that were recommended by our CEO and approved by the Committee. The financial performance goals and their weightings for the Distribution segment were as follows:
|
| | | |
Financial Performance Goal | | | Weighting |
Adjusted Segment EBITDA vs. Target | | | 33% |
Segment Sales vs. Target | | | 33% |
Segment Free Cash Flow vs. Target | | | 34% |
Company performance at 70% of target is required to earn a threshold payout of 40% for each performance measure; Company performance at 100% of target earns a 100% payout; and Company performance at 140% of target generates a maximum payout of 200%. Interpolation is used to determine the payouts for Company financial performance between between these amounts.
The following table shows the relationship between the Distribution segment's 2018 adjusted financial performance and each performance measure, the degree to which each performance measure was attained, and the resulting Distribution segment performance award factor for Mr. Lariviere.
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| 2018 ANNUAL INCENTIVE AWARD CALCULATIONS FOR DISTRIBUTION NEO |
| | 2018 Segment Performance(4) | | Financial Targets | | Percentage of Factor Earned | | Weighting Factor | | % Of Target Award(5) |
Adjusted Segment EBITDA(1) | $67.8 million | | $74.2 million | | 82.8% | | 33% | | 27.3% |
Adjusted Segment Sales(2) | $1,139.5 million | | $1,137.8 million | | 100.2% | | 33% | | 33.1% |
Adjusted Segment Free Cash Flow(3) | $13.5 million | | $17.6 million | | 53.0% | | 34% | | 18.0% |
Resulting Aerospace Performance Award Factor | | 78.4% |
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(1) | Adjusted Segment EBITDA is defined as segment operating income, before depreciation and amortization and certain items that are not indicative of the operating performance. |
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(2) | Adjusted Segment Sales is defined as "segment net sales, including sales between segments." |
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(3) | Adjusted Segment Free Cash Flow is defined as “segment net cash provided by (used in) operating activities” less “expenditures for property, plant & equipment,” adjusted for certain items that are not indicative of the operating performance. |
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(4) | In accordance with the original authorization of the 2018 annual incentive awards, the adjusted Company performance shown in the table reflects the following adjustments to our reported financial results: Segment EBITDA was favorably adjusted by $2.1 million for unplanned one-time bonuses to employees earning less than $70,000 as a result of The Tax Cuts and Jobs Act and restructuring costs. Segment free cash flow was favorably adjusted by an aggregate of $9.6 million for the aforementioned adjustments to EBITDA, unplanned cash settlements, the segment's share of unplanned contributions to the qualified pension plan, and acquisition and corporate development costs. |
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(5) | This column represents the product of the Percentage of Factor Earned figures multiplied by the Weighting Factor. |
Since 75% of Mr. Lariviere's annual cash incentive award was based on Segment performance and 25% was based on corporate performance, Mr. Lariviere's aggregate annual cash incentive award factor was 80.4% (.75 x 78.4% + .25 x 86.4%). The following table shows the calculation of the 2018 annual cash incentive award earned by Mr. Lariviere, together with the resulting percentage of base salary such award represents:
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| Named Executive Officer | | 2018 Base Salary | | Target Award % | | Annual Incentive Award Perf. Factor | | 2018 Cash Incentive Award | | Incentive Award Expressed as a Percentage of Base Salary |
| Alphonse J. Lariviere, Jr. | | $421,275 | | 65% | | 80.4% | | $220,158 | | 52.3% |
Long-Term Incentive Awards
The Committee usesPrior to 2021, the Company had a long-standing practice of using cash- and equity-based awards under the long-termlong- term incentive features of the Company's stock incentive plans ("LTIP Awards") in order to focus executive officers on long-term performance. Most recently under this approach, LTIP Awards generally arewere based on the Company’s actual performancetotal shareholder return ("TSR") and Average Adjusted Return on Total Invested Capital ("Average Adjusted ROIC") results during a three-year performance period as comparedrelative to performance measures established at the beginningthose of the performance period. The award payout for a completed performance period is determined by comparing the Company’s actual financial performance for the three-year period with the performance ofcompanies in the Russell 2000 Index for the same period. Award payouts for completed performance periods are madeIndex. LTIP Awards were generally paid in cash unless a participant hashad not yet achieved his or her requiredmet their stock ownership level under the Company’s stock ownership guidelines,guidelines.
The Company’s measurement of Average Adjusted ROIC performance relative to the Russell 2000 typically delayed the calculation of the final LTIP payouts for any three-year period until a sufficiently large number of Russell 2000 companies had reported their audited financial results for the final year of the three-year period. As a result, reporting of the final LTIP payouts for a three-year period normally would not occur until well after the filing of the Company's annual proxy statement. This delay in which casereporting was mentioned by investors during the investor outreach conducted after the Company's 2020 say-on-pay vote. Investors also commented on the cash-based nature of the awards, expressing a preference for more reliance on equity-based awards.
In response to the shareholder feedback, the Committee may electmodified its long-term incentive award program to pay upincrease the emphasis on equity and permit the more timely reporting of long-term incentive compensation payouts. The LTIP Awards granted to one-thirdour NEOs in February 2021 consisted of a combination of service-based restricted share awards ("RSAs") and performance share units settled in shares ("PSUs"), as opposed to the cash-based awards that had been utilized prior to 2021. Consistent with the Company’s practice of emphasizing performance-based awards, 75% of an NEO’s target long-term incentive value was delivered in the form of PSUs and 25% in the form of RSAs. The Committee believes this change will increase the alignment of interests between our NEOs and shareholders and help build stock ownership of new executives, striking a reasonable balance between awards focused on executive retention and those linked to the Company’s long-term financial results. Performance-based awards continue to be based on TSR and Average Adjusted ROIC over a three-year performance period, each of which remain equally weighted in determining payouts. While TSR continues to be assessed against the companies in the Russell 2000 Index, Average Adjusted ROIC will be evaluated against internally established goals for the three-year performance period. These changes not only increase the focus on achieving the long-term goals of the amount earnedCompany’s strategic plan and on-going transformation, but also allow us to determine and report payouts in shares of Company stock. Ina more timely manner.
2021 LTIP Awards. Consistent with the discretionCompany’s new approach, the Committee approved the following long-term incentive awards to our NEOs in 2021. The target value of the Committee, uplong-term incentive awards granted to each NEO approximated the market median for other executives in similar roles at companies similar in revenue to size to the entireCompany.
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| 2021 LTIP AWARDS |
| | Target LTI Value | | | | |
| Executive | | Percentage
of Base Salary | | Target Value(1) | | RSAs(2) | | Target PSUs(3) |
| Ian K. Walsh | | 300% | | $2,550,000 | | 19,385(4) | | 26,065 |
James G. Coogan(5) | | 55% | | $151,250 | | 675 | | 2,020 |
| Robert D. Starr | | 150% | | $756,855 | | 3,370 | | 10,115 |
| Russel J. Bartlett | | 140% | | $595,000 | | 2,650 | | 7,955 |
| Shawn G. Lisle | | 105% | | $438,644 | | 1,955 | | 5,865 |
| Kristen M. Samson | | 55% | | $154,000 | | 2,435(6) | | 2,060 |
(1) Annual grants made during February 2021 are shown. Target values may differ from actual values realized.
(2) Represents 25% of target value based on a stock price of $55.85 per share, the closing price of the Company's common stock on the NYSE on February 19, 2021, the trading day prior to the date of grant.
(3) Represents 75% of target value based on a stock price of $55.85 per share, the closing price of the Company's common stock on the NYSE on February 19, 2021, the trading day prior to the date of grant.
(4) Includes an additional one-time grant of 10,695 RSAs (approximately $600,000 in value) granted in accordance with the terms and provisions of Mr. Walsh's employment agreement.
(5) Represents the long-term incentive awards granted to Mr. Coogan in February 2021, when he was Vice President – Investor Relations and Corporate Development.
(6) Includes an additional one-time grant of 1,750 RSAs to make Ms. Samson whole from amounts lost up when leaving her former employer.
Each RSA will vest ratably over three years, commencing as of March 1, 2022 and continuing as of the first and second anniversaries of such date, subject to the continued employment of the participant through the applicable vesting date. If a participant’s employment with the Company terminates for any reason other than, death, disability or retirement, all unvested shares shall be forfeited to the Company. If a participant dies or becomes disabled while in the employ of the Company or retires after attaining age 62 with at least five years of employment service or after attaining age 65, all unvested shares will become fully vested. All holders of RSAs are entitled to receive dividends when and as paid on the Company’s common stock.
Each PSU represents the contingent right to receive one share of the Company’s common stock, or at the Company’s election, the value of such share, subject to the terms and conditions set forth in the Performance Stock Unit Award Agreement evidencing each award. Depending on the financial performance of the Company during the three-year performance period commencing as of January 1, 2021 and ending as of December 31, 2023 (the “Performance Period”), the holder of each PSU may earn from 0% to 200% of the target number of PSUs. The performance measures for each PSU are Average Adjusted ROIC and TSR, each equally weighted at 50% of the total award. Average Adjusted ROIC will be measured against internally generated targets and TSR will be measured on a relative basis against the performance of the companies comprising the Russell 2000 index during the Performance Period. Earned PSUs, if any, shall vest on the last day of the Performance Period
(the “Vesting Date”) if the participant is then employed by the Company. If a participant’s employment with the Company terminates for any reason other than death, disability or retirement prior to the Vesting Date, all unvested PSUs shall be forfeited to the Company. If a participant dies or becomes disabled while in the employ of the Company or retires after attaining age 62 with at least five years of employment service or after attaining age 65 prior to the Vesting Date, the number of PSUs that become earned shall be determined at the end of the Performance Period and the earned PSUs, if any, shall be settled on a pro rata basis. All holders of PSUs will be entitled to receive dividend equivalents on earned PSUs when the awards are settled after the completion of the Performance Period.
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| 2021-23 PERFORMANCE SHARE UNIT GOALS |
Level of Achievement(1) | | Percentage of Target Award Vested | | 3 Year Avg. Adj. ROIC vs. Internal Goal | | 3 Year TSR Ranking vs. Russell 2000 Companies(2) |
| < Threshold | | 0 | | < 75% of Target | | < 25th Percentile |
| Threshold | | 50% | | 75% of Target | | 25th Percentile |
| Target | | 100% | | 100% of Target | | 50th Percentile |
| Maximum | | 200% | | ≥ 125%% of Target | | ≥ 75th Percentile |
(1) Interpolation is used to determine payments for financial performance for results from threshold to target and from target to maximum.
(2) The percentage of target award vesting with respect to TSR results relative to the companies in the Russell 2000 Index is capped at 150% if the Company's performance is less than zero.
Average Adjusted ROIC is a non-GAAP financial measure that includes certain adjustments approved by the Committee for purposes of determining the level of achievement of the Company's financial performance. It has not been prepared in accordance with U.S. GAAP and is not based on any standardized methodology prescribed by U.S. GAAP. As a result, it is not necessarily comparable to similarly titled measures presented by other companies. A description of the adjustments used in the determination of Average Adjusted ROIC is set forth in Appendix A, together with a reconciliation to the most directly comparable financial measures calculated under U.S. GAAP.
Estimated 2021 LTIP Payouts. In February of 2019, the Committee granted three-year cash-based LTIP Awards to the persons then serving as the Company's executive officers, including Messrs. Starr and Lisle, two of our current NEOs. None of our other current NEO's received these awards, as they were not executive officers of the Company as of the date of grant.
The Compensation Committee will determine the level of achievement of the performance criteria for these LTIP Awards after a sufficient number of Russell 2000 companies report their earnings for the year ended December 31, 2021. This will not occur until after the date of this proxy statement, so the exact amount of the amount earned maypayouts that will be paid in shares of Company stock to the extent requested by a participant. Assuming a participant has achieved his or her required stock ownership level under the Company's stock ownership guidelines, LTIP Award payouts are made in cash in order to provide additional liquidity to participants without the need to sell Company securities.
Officers who are not executive officers generally receive long-term incentive awards consisting of non-qualified stock options and restricted share awards that are also granted under the Company's stock incentive plans. The Committee has historically determined an officer's eligibility for these awards based on his or her prior year of service. As a result, Mr. Lariviere received an additional long-term incentive in February 2018 consisting of non-qualified stock options and restricted share awards granted in respect of his service during 2017 prior to being appointed Executive Vice President of the Companythese awards is not currently calculable and President of the Distribution segment. Those awards areis not shown in the "GrantsSummary Compensation Table. As noted in footnote 3 to the Summary Compensation Table, the Company will prepare and file a Current Report on Form 8-K disclosing the actual payouts in respect of Plan-Based Awards Table" on page 39.these awards promptly after they are determined and approved by the Committee.
Set forth below is a summary of the principal terms and conditions of the three-year LTIP Award that will be settled later in the year after a sufficient number of Russell 2000 companies report their earnings for the year ended December 31, 2021.
2018 LTIP Awards. In 2018, the Committee granted cash-basedThree-Year LTIP Awards forCovering the 2018-2020 performance period to each of our Named Executive Officers.2019-2021 Performance Period. The target award opportunities for the Named Executive Officers forthree-year LTIP Awards covering the 2018-20202019-2021 performance period are as follows:
| | | | | | | | | | | | | | | | | | | | |
Executive(1) | | 2019 Base Salary(2) | | Cash Award Opportunity as a % of Base Salary | | Award Value at Target(3) |
| Robert D. Starr | | $484,000 | | 150% | | $604,117 |
| Shawn G. Lisle | | $400,725 | | 105% | | $420,761 |
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| TARGET LTIP AWARDS FOR THE 2018-2020 PERFORMANCE PERIOD |
| | | | | LTIP Awards |
| Named Executive Officer | | 2018 Base Salary(1) | | Cash Award Opportunity as a % of Base Salary(2) | | Award Value at Target(3) |
| Neal J. Keating | | $1,000,000 | | 300% | | $3,000,000 |
| Robert D. Starr | | $471,000 | | 150% | | $706,500 |
| Richard R. Barnhart | | $450,000 | | 150% | | $675,000 |
| Alphonse J. Lariviere, Jr. | | $410,000 | | 150% | | $615,000 |
| Shawn G. Lisle | | $390,000 | | 105% | | $409,500 |
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(1) | Reflects base salary as of the date of grant. |
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(2) | The LTIP Award opportunity percentage for Mr. Keating's salary grade is 275%. Since 2014, however, he has received an additional 25% retention opportunity as an additional inducement to remain in the employ of the Company. |
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(3) | Reflects estimated value of LTIP Awards at 100% of target. |
Because LTIP Awards generally cover a three-year performance period, a new participant in(1) Messrs. Lisle and Starr were the LTIP program would not be eligible to receive any LTIP Award payout for at least three years following his or her first award. To alleviate this hardship and better align a new executive officer’s incentive compensation with company performance, the Committee’s recent practice has been to grant a new executive officer additional LTIP Awards with one- and two-year performance periods so that he or she will be eligibleonly NEOs to receive a potentialcash-based LTIP Award payoutfor the 2019-21 performance period. Messrs. Walsh, Coogan and Bartlett and Ms. Samson did not receive an LTIP Award for the 2019-21 performance period. Mr. Starr's award value at target is pro-rated based on the endnumber of eachdays he was employed during the performance period.
(2) Reflects base salary as of his or her first three years following his or her appointment. In keeping with this past practice, the Committee, in 2018, granted eachdate of Messrs. Barnhartgrant, which was February 18, 2019.
(3) Reflects estimated value of LTIP Awards at 100% of target. The value of Mr. Starr's LTIP Award has been pro-rated to reflect the portion of the performance period during which he was employed by the Company.
The performance measures and Lariviere additional one- and two-yearweightings for the three-year LTIP Awards covering the 20182019-2021 performance period and the 2018-2019applicable benchmarks against which Company performance period, respectively. Except for the performance periods and the corresponding performance periods of the applicable Russell 2000 company benchmarks, the terms and conditions of these additional LTIP Awardsis measured are substantially the same as the terms and conditions of the corresponding three-year LTIP Awards.
The Committee utilized the following performance measures, benchmarks and weightings for all of the LTIP Awards discussed above:
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| | | | | | | | | | | | | |
| Performance Measure | | Benchmark | | Weighting |
Three-Year
Average Return on Total Capital for the Performance PeriodAdjusted ROIC | | Three-Year Average Return on Total Capital for the Russell 2000 Index Companies for the Performance Period | | 50% |
Three-Year
Average Total Return to Shareholders for the Performance PeriodTSR | | Three-Year Average Total Return to Shareholders for the Russell 2000 Index Companies for the Performance Period | | 50% |
The Committee uses the Russell 2000 Index companies for the Company's long-term incentive compensation benchmarks because the Committee believes that these are the kinds of companies against which an investor would likely compare the Company’s performance when considering investment alternatives, and the disparity of the Company's two business segments precludes the development of a relevant peer group of similarly situated companies. Use of the Russell 2000 Index companies also obviates the need for the development of long-term internal benchmarks of performance.
Company performance in the bottom quartile of the Russell 2000 earns no long-term incentive award payment for the performance goal; performance at the 25th percentile results in a long-term incentive award at 25% of target for the performance goal; performance at the median results in a long-term incentive award at 100% of target for the performance goal; and performance in the top quartile, or above, results in a maximum long-term incentive award payment at 200% of the target for the performance goal. Interpolation is used to determine payments for financial performance between the 25th percentile up to the median, and above the median up to the 75th percentile. Notwithstanding the foregoing, the percentage of target payable with respect to any particular financial measure is capped at 150% if the Company’s performance with respect to that measure is less than zero. This performance measurement methodology remains constant through the years although the performance of the Russell 2000 changes annually, thus increasing or decreasing the targets.
For purposes of determining the achievement or satisfaction of the performance measures discussed above, the Committee approved the samesubstantially comparable adjustments to the calculation of Company performance that were approved in connection with the grant of
the 20182021 annual incentive awards. See "Annual Cash Incentive Awards" above.above and the discussion set forth in Appendix A. Like the annual incentive awards, the Committee retained the ability to increase, reduce or eliminate the amount of any award that would otherwise be payable as a result of the adjustments or to further adjust any award due to special events or unforeseen circumstances.
Estimated 2018 LTIP Payouts. The Committee previously granted three-year cash-based LTIP Awards to Messrs. Keating, Starr and Lisle covering the 2016-2018 performance period, and as discussed above, the Committee also granted one-year cash based LTIP Awards to Messrs. Barnhart and Lariviere covering the 2018 performance period.
The P&C Committee will determine the level of achievement of the performance criteria for these LTIP Awards after a sufficient number of Russell 2000 companies report their earnings for the year ended December 31, 2018. This will not occur until after the date of this proxy statement, so the exact amount of the payouts that will be made in respect of these awards is not currently calculable and is not shown in the Summary Compensation Table. As noted in footnote 3 to the Summary Compensation Table, the Company will prepare and file a Current Report on Form 8-K disclosing the actual payouts in respect of these awards promptly after they are determined and approved by the Committee.
Set forth below is a summary of the principal terms and conditions of the three- and one-year LTIP Awards that will be settled later in the year after a sufficient number of Russell 2000 companies report their earnings for the year ended December 31, 2018.
Three-Year LTIP Awards Covering the 2016-2018 Performance Period. The target award opportunities for the three-year LTIP Awards covering the 2016-2018 performance period are as follows:
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| TARGET LTIP AWARDS FOR THE 2016-2018 PERFORMANCE PERIOD |
| | | | | LTIP Awards |
| Named Executive Officer | | 2016 Base Salary(1) | | Cash Award Opportunity as a % of Base Salary | | Award Value at Target(2) |
| Neal J. Keating | | $960,000 | | 300% | | $2,880,000 |
| Robert D. Starr | | $440,000 | | 150% | | $660,000 |
| Shawn G. Lisle | | $350,000 | | 105% | | $367,500 |
(1) Reflects base salary as of the date of grant.
(2) Reflects estimated value of LTIP Awards at 100% of target.
The performance measures and weightings for the three-year LTIP awards covering the 2016-2018 performance period and the applicable benchmarks against which Company performance is measured are as follows:
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| | | | |
Performance Measure | | Benchmark | | Weighting |
Three-Year Average Return on Total Capital | | Three-Year Average Return on Total Capital for the Russell 2000 Index Companies | | 33% |
Three-Year Average Annual Compound Growth in Earnings per Share | | Three-Year Average Annual Compound Growth in Earnings per Share for the Russell 2000 Index Companies | | 33% |
Three-Year Average Total Return to Shareholders | | Three-Year Average Total Return to Shareholders for the Russell 2000 Index Companies | | 34% |
One-Year LTIP Awards Covering the 2018 Performance Period. The target award opportunities for the one-year LTIP Awards covering the 2018 performance period are as follows:
|
| | | | | | |
| TARGET LTIP AWARDS FOR THE 2018 PERFORMANCE PERIOD |
| | | | | LTIP Awards |
| Named Executive Officer | | 2018 Base Salary(1) | | Cash Award Opportunity as a % of Base Salary | | Award Value at Target(2) |
| Richard R. Barnhart | | $450,000 | | 150% | | $675,000 |
| Alphonse J. Lariviere, Jr. | | $410,000 | | 150% | | $615,000 |
(1) Reflects base salary as of the date of grant.
(2) Reflects estimated value of LTIP Awards at 100% of target.
The performance measures and weightings for the one-year LTIP Awards covering the 2018 performance period and the applicable benchmarks against which Company performance is measured are as follows:
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| | | | |
Performance Measure | | Benchmark | | Weighting |
One-Year Average Return on Total Capital | | One-Year Average Return on Total Capital for the Russell 2000 Index Companies | | 50% |
One-Year Average Total Return to Shareholders | | One-Year Average Total Return to Shareholders for the Russell 2000 Index Companies | | 50% |
Current Accruals in Respect of Estimated 20182021 LTIP Payouts.
As discussed above, the Summary Compensation Table does not include any amounts that have been accrued as expense in relation to any of the LTIP awards that are expected to be settled in respect of the three- and one-yearthree-year performance periods ended December 31, 2018.2021. The Company will report the actual amounts earned and paid to our Named Executive Officers in respect of these awards in a Current Report on Form 8-K, which will be filed with the SEC later this year after the Committee has received sufficient 20182021 operating results for Russell 2000 companies and certified the extent to which the Company achieved the performance goals established for the awards.
As of January 30, 2019,2022, approximately 17%25.2% of the Russell 2000 Index companies had reported earnings for the year ended December 31, 2018.2021. Based on the Company's adjusted performance for the performance periods and preliminary data available as of this date, the Company has accrued the following amounts in respect of these LTIP awards: Mr. Keating: $3,456,000,awards based on an estimated aggregate payout percentage equal to 100.0% of target: Mr. Starr: $792,000, Mr. Barnhart: $1,045,913, Mr. Lariviere: $952,943$604,117 and Mr. Lisle: $441,000.$420,761. SHAREHOLDERS ARE CAUTIONED THAT THE FOREGOING INFORMATION IS PRELIMINARY IN NATURE, IS SUBJECT TO CHANGE BASED ON THE ACTUAL REPORTED RESULTSRESULTS OF THE RUSSELL 2000 INDEX COMPANIES, AND HAS NOT BEEN APPROVED BY THE COMMITTEE. THE COMPANY'S RELATIVE PERFORMANCE AGAINST THE RUSSELL 2000 INDEX COMPANIES MAY BE BETTER OR WORSE THAN WOULD BE INDICATED BY THE PRELIMINARY DATA THAT IS AVAILABLE AS OF THE DATE OF THIS PROXY STATEMENT. THEREFORE, THE ACTUAL PAYOUTS IN RESPECT OF THESE AWARDS AS FINALLY DETERMINED BY THE COMMITTEE MAY BE MORE OR LESS THAN THE AMOUNTS ACCRUED.
Retirement Benefits
The Company sponsors a tax-qualified defined contribution plan (the "401(k) plan"), in which our Named Executive Officers are eligible to participate. Participants generally may elect to contribute from 1% to 50% of their eligible compensation to the 401(k) plan in the form of pre-tax, after-tax or Roth contributions subject to certain limitations imposed by federal law. The Company generally makes employer-matching contributions on a participant's pre-tax and Roth contributions in the amount of $1.00 for each $1.00 that a participant contributes, up to 5% of compensation subject to applicable limits
imposed by federal tax law. Participants in the 401(k) plan are always vested in their own contributions. Employer-matching contributions vest when a participant acquires three years of service with the Company.
Our Named Executive OfficersNEOs are also eligible to participate in our non-qualified Deferred Compensation Plan, which permits pre-tax deferrals of up to 50% of a participant's base salary and up to 100% of his or her annual cash incentive award. In addition, the Company makes supplemental deferred compensation contributions to eligible participants equal to 10% of the amount by which a participant's compensation exceeds the maximum allowable compensation limit for purposes of a tax-qualified plan, which
for 20182021 was $275,000.$290,000. The supplemental deferred compensation earned by our Named Executive Officers in 20182021 is included in the "All Other Compensation" section of the Summary Compensation Table.
Participant accounts under the Deferred Compensation Plan generally are credited with interest at a rate equal to 120% of the applicable federal long-term rate in effect for the month of October prior to the beginning of the applicable plan year (the "Interest Crediting Rate"). Effective as of July 1, 2016, however, the Deferred Compensation Plan was amended to make available to participants various market-based investment crediting options including five pre-constructed "model" portfolios, for the deemed investment of up to 50% of their then-existing account balances as of July 11, 2016, and 100% of their own deferral contributions after July 11, 2016. All supplemental deferred compensation contributions made by the Company will continue to be credited with interest based on the annual Interest Crediting Rate in effect from time to time.
A participant must be actively employed on the crediting date (i.e., January 1 following the applicable plan year) to receive matching and supplemental deferred compensation contributions. Deferrals and all Company contributions and earnings are 100% vested. For more information about the Deferred Compensation Plan, please refer to "Non-Qualified Deferred Compensation Plan" below.
Finally, some of our Named Executive OfficersNEOs have accrued benefits under a tax-qualified defined benefit pension plan and a supplemental employees' retirement plan ("SERP"), both of which are now closed to new participants. The SERP generally provides benefits that the Company was unable to provide under the tax-qualified defined benefit pension plan due to federal tax law limits. See the discussion under the heading "Pension Benefits" for more information about the defined benefit pension plan and the SERP.
Other Benefits
Our Named Executive Officers are eligible to participate in the benefit plans that are generally available to our employees, which include health, dental, life insurance, vision and disability plans. The Company provides relatively few perquisites, consisting primarily of a vehicle allowance, an annual physical examination, executive life insurance, employer matching contributions under our 401(k) plan and supplemental employer contributions under our Deferred Compensation Plan. In 2021, the vehicle allowance previously extended to executive officers was discontinued in connection with the comprehensive review of the Company's executive compensation program undertaken following the 2020 say-on-pay vote. The only affected executives (Messrs. Lisle and Starr) were given a one-time salary adjustment equal to the value of the prior benefit.
The Company also owns and operates a corporate aircraft that is used primarily for business travel by our senior leadership team and other members of management. From time to time, the corporate aircraft may be used for limited non-business purposes, subject to availability and prior approval by our President and Chief Executive Officer. In addition, spouses and guests of our senior leadership team and other members of management infrequently ride along when the corporate aircraft is already going to a specific destination for a business purpose. This use involves little or no incremental cost to the Company.
During 2018, the Committee authorized Mr. Keating to incur up to $100,000 of direct corporate expense for the non-business use of the corporate aircraft during the one-year period commencing as of July 1, 2018, and ending June 30, 2019, in lieu of an increase in his base salary during such period.
The aggregate incremental cost of all such non-business use of the corporate aircraft by our NEOs, if any, is included in the "All Other Compensation" column of the Summary Compensation Table set forth above.Table. For purposes of the foregoing we determineand the amounts shown in the table, the incremental cost of the non-business use of the corporate aircraft is determined based on the variable operating costs incurred by the Company in connection with such travel (and(including any related unoccupied positioning, or "deadhead," flights), which includes (i) landing, ramp, and parking fees and expenses; (ii) crew travel expenses; (iii) catering supplies and related expenses; (iv) aircraft fuel and oil expenses per hour of flight; (v) certain maintenance and repair expenses; and (vi) the cost of passenger ground transportation. Because the aircraft is used primarily for business travel, this methodology excludes fixed costs that do not change based on usage, such as the salaries of pilots and crew, purchase or leasethe acquisition costs of the aircraft, and the costs of maintenance and upkeep.
Our named executive officersNEOs incur taxable income, calculated in accordance with the Standard Industry Fare Level ("SIFL") rates, for all non-business use of our corporate aircraft. We do not grant bonuses to cover, reimburse, or otherwise “gross up” any income tax owed for non-business travel on our corporate aircraft.
Clawback Policy
The Company adopted a compensation clawback policy that applies to all officers of the Company and its domestic subsidiaries, including our NEOs, effective as of January 1, 2021. In the event that we are required to restate our financial results due to material noncompliance by the Company with any financial reporting requirement under the securities laws (a "Mandatory Restatement"), the Committee, in its sole discretion exercised in good faith, may require each such officer whose fraudulent or knowing, intentional misconduct resulted, directly or indirectly, in the Mandatory Restatement to pay the Company a sum up to and including the Recapture Amount. For purposes of the foregoing, the "Recapture Amount" is the difference between (i) the amount of incentive compensation paid or received, or to be paid or received, by a covered person based on the financial results reported in financial statements that are subsequently determined to be subject to a Mandatory Restatement, and (ii) the amount that would have been paid or received by the covered person based on the financial results reported in the Mandatory Restatement, in each case as determined in good faith by the Committee and reduced by net tax cost of such compensation to the covered person. To the extent that the price of the Company’s common stock is or was a component of the performance objectives upon which the incentive compensation was paid, the value of the stock taken into account for purposes of re-determining the level of achievement based on the Mandatory Restatement shall be equitably adjusted by the Committee in its sole discretion.
Employment and Change in Control Arrangements
The Company currently has an employment agreementsagreement with Messrs. KeatingMr. Walsh and Starr. Messrs. Barnhart, Lariviere and Lisle do not have employment agreements. The Company currently has change in control agreements with each of our Named Executive Officers.Messrs. Walsh, Coogan and Lisle. The terms and conditions of the employment and change in control agreements are described in more detail below. Please see "Post-Terminationbelow and reflected in the Post-Termination Payments and Benefits."Benefits Table.
The Committee approved the employment agreements in orderagreement with Mr. Walsh to encourage the executiveshim to remain with the Company, discourage competitors from attempting to hire those executiveshim and protect the Company in the event that an executivehe departs by strictly prohibiting the disclosure of confidential information, limiting the executive’shis ability to compete with the Company after employment termination, requiring the signing of a release agreement before the payment of severance benefits and imposing reasonable post-employment cooperation obligations. The Committee believes that the change in control agreements serve the interests of our Company and its shareholders by ensuring that, if a hostile or friendly change of control is ever under consideration,
our executives will be able to advise our Board of Directors about the potential transaction in the best interests of shareholders, without being unduly influenced by personal considerations.
The employment agreements and change in control agreements with Mr. Keating and with Mr. Starr provide the Company with a right to "claw back" compensation paid or received, or to be paid or received, by these officers relating to Incentive Compensation (as defined in the agreements) paid or awarded to the executives where there is a Mandatory Restatement (as defined in the agreements) of the Company’s financial statements that arises directly from the fraudulent or knowing, intentional misconduct of the officer. The Committee intends to establish a claw-back policy for all executive officers after the SEC issues final rules and the NYSE issues listing conditions for the recovery of incentive compensation as required under the Dodd-Frank Act.
Stock Ownership Guidelines
The Company maintains stock ownership guidelines for both non-employee directors and corporate management. The Board believes that directors and senior management should have a significant equity position in the Company and that these guidelines further the Board’s interest in encouraging a longer-term focus in managing the Company. SeeThe stock ownership guidelines were amended in February of 2021 to increase the ownership multiples applicable to our CEO (from 3X to 5X base salary) and our CFO (from 2X to 3X base salary). The guidelines were further amended in February of 2022 to increase the ownership multiple applicable to our non-employee directors (from 3X to 5X the annual cash retainer). For information about the stock ownership guidelines for non-employee directors, please see "Information about the Board of Directors and Corporate Governance - Other Information about the Board’s Structure and Composition - Stock Ownership Guidelines" for further information regardingGuidelines, " above.
As amended, the stock ownership guidelines for non-employee directors.
Thecurrent stock ownership guidelines for senior management require all covered executives to retain shares having a value equal to one-half of the net after-tax value of any equity award granted under the Company's equity-based compensation plans, until they achieve and continue to maintain the following stock ownership levels:
|
| | | | |
| Position with the Company | Salary
Multiple
|
| President and CEO | 5X |
| Chief Financial Officer | 3X |
Participants in the LTIPAll other Executive Officers | 2X |
All Otherother Corporate Vice Presidents and
Designated Senior Executives
| 1X |
The Committee reviews the stock ownership levels of executives subject to these guidelines on a quarterly basis, and the Corporate Governance Committee reviews the stock ownership levels of all non-employee directors.
When considering whether the guidelines have been achieved at any particular point in time, the value of a share of Company stock is the highest of (i) the closing price of a share of Company stock on the NYSE on the most recent trading day preceding the date of determination; (ii) the highest closing price of a share of Company stock on the NYSE on the last trading day of each of the last five years; or (iii) $39.54,$43.15, which was the closing price of a share of Company stock on the NYSE on February 13, 2015,December 31, 2021, the last trading day of the fiscal year immediately preceding the date on which the Board most recently amended and restated the guidelines.
For purposes of determining compliance with the guidelines, shares owned directly by a covered person or by his or her spouse or minor children, shares held in trust for the benefit of the covered person or for the benefit of his or her spouse or minor children, and unvested time-based restricted share awards and restricted stock units are included in the calculation of shares owned, but unvested performance share awards and unexercised stock options are excluded.
Each person subject to the guidelines is expected to use good faith efforts to attain the applicable stock ownership amount within a reasonable period of time after becoming subject to the guidelines or becoming subject to a higher ownership multiple, and is expected to continuously own a sufficient number of shares to meet the applicable stock ownership amount once it has been attained. Until the applicable stock ownership amount has been achieved, and thereafter whenever the applicable stock ownership amount has not been met, each person subject to the guidelines is expected to retain at least 50% of the shares of Company stock acquired upon grant, exercise or vesting of equity awards (including long-term performance awards payable in shares) granted under any equity compensation plan or program maintained by the Company, net of any shares surrendered to pay taxes and/or exercise prices. All shares of Company stock acquired upon the vesting of any long-term performance awards payable in cash will be expected to be retained until the applicable stock ownership amount has been attained.
As of December 31, 2018, each Named Executive Officer other than2021, Mr. BarnhartLisle had achieved his targeted stock ownership amount, and several NEOs, including Mr. Keating, own Company stock well in excessMs. Samson and Messrs. Walsh, Coogan and Bartlett, all of the prescribed amounts. Mr. Barnhart is newwhom were recently appointed to his position, and the Committee has determined that it is satisfied with the progress he has made to achievement of his targeted stock ownership amount. Each non-employee director had also achieved his or her targeted stock ownership amount as of such date.their respective positions, were progressing toward compliance.
For more information about the stock holdings of our directors and Named Executive Officers, please see "Stock Ownership of Directors and Executive Officers" above.
Risk Assessment of Compensation Practices
During 2018,Each year, management, including the Company’s Internal Audit Department, reviewed existingreviews the incentive compensation programs in which executives, including those who are not Named Executive Officers and other Company employees participate in order to confirm thatassess whether such programs do not create risks that are reasonably likely to have a material adverse effect on the Company. Incentive compensation programs exist at our corporate headquarters and at both the Aerospace and Distribution segmentsbusiness unit level, and no particular business carries a significant portion of the Company’s overall risk profile. Stock incentive awards are also available under the Company’s incentive compensation plans for executives recommended by senior management at each business segment and at our corporate headquarters.management. These awards are determined based upon parameters developed by the P&CCompensation Committee’s independent compensation consultant and all awards are reviewed and approved by the P&CCompensation Committee. The cash incentive compensation program for corporate executives is subject to performance parameters and dollar limitations with supervisor recommendations reviewed and approved by the Chief Executive Officer, the Chief Financial Officer and the Chief Human Resources Officer. Cash incentive programs at the Aerospace segmentour business units tend to be discretionary in nature with review and approval of all recommendations by the division senior management as well as the Aerospace segment President. Cash incentive programs at the Distribution segment tend to be based upon degree of attainment of specific financial performance goals which, overall, are developed on a basis consistent with the segment’s longer-term financial goals. These programs are subject to review by the Company's Chief Human Resources Officer and the applicable segment's Vice President of Human Resources and segment President.business unit management. On the basis of this review, management has concluded that the Company’s existing incentive programs applicable to executives, including those who are not Named Executive Officers, do not create risks that are reasonably likely to have a material adverse effect on the Company.
Short Sales, Hedging and Pledging
The Company’s Insider Trading Policy expressly prohibits directors, executive officers and other designated employees who participate in the Company's financial reporting process or otherwise have access to information relating thereto from engaging in short-term or speculative transactions in Company securities, including, among others, (i) short sales of Company securities; (ii) publicly traded options, puts, calls or other similar derivative securities; (iii) hedging or similar monetization transactions, such as zero-cost collars and forward sale contracts; and (iv) holding Company securities in a margin account or pledging Company securities as collateral for a loan.
On December 18, 2018, During 2021, this policy was amended to eliminate any ability for the SEC adopted new rules requiring public companies to provide enhanced disclosure about their hedging practicesissuance of a waiver or policies in their annual proxy or information statements covering fiscal years beginning on or after July 1, 2019. The new rules will require a company to describe any practices or policies it has adopted relating to the ability of its directors, officers and employees to purchase securities or other financial instruments, or otherwise engage in transactions,pre-approval, so that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or director. The Board of Directors intends to review its currentall such hedging and pledging policies in light of the new disclosure rules and consider whether any changestransactions are warranted.now unconditionally prohibited.
Tax Considerations
Section 162(m) of the Code ("Section 162(m)") generally disallows a tax deduction to public companies for compensation paid in excess of $1 million for any fiscal year to a company’s "covered employees," which includes the principal executive officer, or other named executive officers (excluding the company’s principal financial officer inand the case of tax years commencing before 2018). However, in the case of tax years commencing before 2018, the statute exempted qualifying performance-based compensation from the deduction limit if certain requirements were met. Section 162(m) was amended in December 2017 by the Tax Cuts and Jobs Act to eliminate the exemption for performance-based compensation (other than with respect to payments made pursuant to certain "grandfathered" arrangements entered into prior to November 2, 2017) and to expand the group of current and formernext three most highly compensated executive officers, who may be covered by the deduction limit under Section 162(m).among others. While the
Committee considers the likely tax consequences of the various components of the Company’s shareholder approved incentive plans were previously structuredexecutive compensation program and strives to provide that certain awards could be madesafeguard the deductibility of executive compensation where possible, tax considerations do not drive the design of our executive compensation program. The Committee believes it is important to retain flexibility to structure the Company’s executive compensation program and practices in a manner intended to qualify for the performance-based compensation exemption, that exemption will no longer be available for 2018 and future tax years (other than with respect to certain "grandfathered" arrangements as noted above). In addition, while the Committee intended that certain incentive awards granted to our NEOs on or prior to November 2, 2017 be deductible as "performance-based compensation" and has assessed the possibility that certain awards will be grandfathered from the changes made by the Tax Cuts and Jobs Act, it cannot guarantee that result. The Committee has taken the potential impact of the Tax Cuts and Jobs Act into consideration when granting incentive awards for 2018 and will do so when approving payout amounts for performance periods ending on December 31, 2018. The Committee expects in the future to authorize compensation in excess of $1,000,000 to named executive officers that will not be deductible under Section 162(m) when it believes doing sodetermines is in the best interests of the Company and its shareholders. The Committee retains discretion to operate the Company’s executive compensation program in a manner designed to promote varying company goals. Consistent with this philosophy and approach, the Committee has concluded that certain compensation arrangements are in the best interest of the Company and its shareholders and consistent with its compensation philosophy and strategy despite the fact that the arrangements may not be fully deductible for tax purposes.
Context of This Discussion
To the extent that the foregoing discussion contained future individual or Company performance targets and goals, they were disclosed solely to facilitate a better understanding of the Company’s executive compensation program. Such performance targets and goals should not be deemed to be statements of management's expectations or estimates of results or other guidance. We strongly encourage investors not to apply these statements in other contexts.
Personnel & Compensation Committee Report
The Personnel & Compensation Committee has reviewed and discussed this Compensation Discussion and Analysis with management and concurs with its contents. Based on this review and discussion, the Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statementProxy Statement on Schedule 14A and incorporated in its annual reportAnnual Report on Form 10-K for the year ended December 31, 2018.
| | |
| Compensation Committee: |
|
Personnel & Compensation Committee: |
|
Richard J. Swift,Jennifer M. Pollino, Chair |
Brian E. BarentsAisha M. Barry |
| E. Reeves Callaway III |
George E. Minnich |
Jennifer M. PollinoA.William Higgins |
|
| | | | | | | | | | | | | |
| This report shall not be deemed to be incorporated by reference by any general statement incorporating this proxy statement by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such statutes, except to the extent that the Company specifically incorporates the report by reference therein. |
SUMMARY COMPENSATION TABLE
The table, footnotes and narrative below describe the aggregate compensation earned by each of our Named Executive Officers for our 2018, 2017 and 2016the last three fiscal years.years (or such lesser period as the individual was a Named Executive Officer). For information on the role of each component of our executive compensation program, please see the discussion within the "Compensation Discussion and Analysis" section of this proxy statement.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | Fiscal Year | Salary
($) | Bonus
($) | Stock Awards(1) ($) | Option Awards(2) ($) | Non-Equity Incentive Plan Compensation(3) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(4) ($) | All Other Compensation(5) ($) | Total
($) |
Ian K. Walsh(6) President & Chief Executive Officer | 2021 | $687,500 | — | | $ | 2,911,619.00 | | — | | $1,154,200 | — | | $159,356 | $4,912,675 |
| 2020 | $204,356 | $200,000 | $ | 1,249,976.00 | | — | | $125,000 | — | | $28,939 | | $1,808,271 |
| | | | | | | | |
James G. Coogan(6) Senior Vice President and Chief Financial Officer | 2021 | $325,771 | — | | $179,442 | — | | $258,951 | — | | $25,906 | $790,070 |
| 2020 | $256,095 | — | | $45,136 | $45,507 | $55,000 | $40,477 | $36,311 | $478,526 |
| | | | | | | | |
Robert D. Starr Former Executive Vice President and Chief Financial Officer | 2021 | $311,095 | — | | $897,970 | — | | — | | — | | $1,822,905 | | $3,031,970 |
| 2020 | $469,882 | — | | — | | — | | $1,231,507 | $61,632 | $131,225 | $1,894,246 |
| 2019 | $494,285 | — | | — | | — | | $1,914,931 | $66,329 | $91,637 | $2,567,182 |
Russell J. Bartlett(7) Senior Vice President and Chief Operating Officer | 2021 | $429,691 | — | | $706,191 | — | | $418,139 | — | | $34,828 | $1,588,849 |
| | | | | | | | |
| | | | | | | | |
Shawn G. Lisle Senior Vice President and General Counsel | 2021 | $444,777 | — | | $520,719 | — | | $395,202 | — | | $44,381 | | $1,405,079 |
| 2020 | $389,037 | — | | — | | — | | $733,638 | — | | $93,649 | $1,216,324 |
| 2019 | $409,241 | — | | — | | — | | $1,160,560 | — | | $68,355 | $1,638,156 |
Kristen M. Samson(7) Vice President and Chief Marketing Officer | 2021 | $271,980 | — | | $282,347 | — | | $183,653 | $213 | $56,177 | $794,370 |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | |
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards(1) ($) | Option Awards(2) ($) | Non-Equity Incentive Plan Compensation(3) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(4) ($) | All Other Compensation(5) ($) | Total ($) |
Neal J. Keating Chairman, President & Chief Executive Officer | 2018 | $1,000,000 | — |
| — |
| — |
| $907,200 | — |
| $283,085 | $2,190,285 |
| 2017 | $992,000 | — |
| — |
| — |
| $5,184,074 | $245,909 | $238,232 | $6,660,215 |
| 2016 | $972,000 | — |
| — |
| — |
| $4,395,505 | $146,655 | $229,421 | $5,743,581 |
Robert D. Starr Executive Vice President and Chief Financial Officer | 2018 | $477,500 | — |
| — |
| — |
| $271,814 | — |
| $102,912 | $852,226 |
| 2017 | $462,100 | — |
| — |
| — |
| $1,121,062 | $35,041 | $96,472 | $1,714,675 |
| 2016 | $446,600 | — |
| — |
| — |
| $1,000,481 | $17,667 | $91,783 | $1,556,531 |
Richard R. Barnhart(6) Executive Vice President and President, Kaman Aerospace Group | 2018 | $456,188 | — |
| — |
| — |
| $260,571 | — |
| $73,349 | $790,108 |
| | | | | | | | | |
| | | | | | | | | |
Alphonse J. Lariviere, Jr.(7) Executive Vice President and President, Kaman Industrial Technologies
| 2018 | $415,640 | — |
| $118,674 | $122,428 | $220,158 | — |
| $73,655 | $950,555 |
| 2017 | $304,820 | — |
| $78,454 | $77,649 | $103,312 | $58,033 | $55,602 | $677,870 |
| | | | | | | | | |
Shawn G. Lisle Senior Vice President and General Counsel | 2018 | $395,363 | — |
| | | $190,425 | — |
| $72,742 | $658,530 |
| 2017 | $375,250 | — |
| — |
| — |
| $751,698 | — |
| $67,423 | $1,194,371 |
| 2016 | $355,250 | — |
| — |
| — |
| $594,545 | — |
| $68,138 | $1,017,933 |
| |
(1) | (1)Amounts shown in the Stock Awards column reflect the aggregate grant date fair value of restricted stock granted to our Named Executive Officers in accordance with FASB Accounting Standards Codification Topic 718 ("ASC 718"). For a discussion of valuation assumptions, see Note 19, Share-Based Arrangements, in our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. |
| |
(2) | Amounts shown in the Option Awards column reflect the aggregate grant date fair value of stock options granted to our Named Executive Officers in accordance with ASC 718. For a discussion of valuation assumptions, see Note 19, Share-Based Arrangements, in our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. |
| |
(3) | Amounts for 2018 represent annual cash incentive awards earned by the Named Executive Officers under our annual cash incentive plans, which are discussed in the Compensation Discussion and Analysis, but do not reflect amounts that cannot yet be determined but which may become due under outstanding LTIP awards for performance periods ended December 31, 2018. The Company will prepare and file a Current Report on Form 8-K disclosing the actual payouts in respect of these awards promptly after they are determined and approved by the Committee in June 2019. Amounts shown for 2017 have been adjusted to reflect the LTIP payouts approved in June 2018 in respect of LTIP awards for performance periods ended December 31, 2017. Similarly, amounts shown for 2016 have been adjusted to reflect the LTIP payouts approved in June 2017 in respect of LTIP awards for performance periods ended December 31, 2016. Our LTIP award program is discussed in more detail in the Compensation Discussion and Analysis. |
| |
(4) | Represents, to the extent applicable, the aggregate of (i) the total change in the present value of accrued benefits under our defined benefit pension plan and SERP, if applicable, from year to year, and (ii) above market or preferential earnings credited under the Company's non-qualified Deferred Compensation Plan. Only Messrs. Keating, Starr and Lariviere have accrued benefits under our defined benefit pension plan, and only Mr. Keating has accrued benefits under the SERP. During 2018, the net change in the present value of accrued benefits under these plans was negative and is not shown in the table pursuant to applicable SEC rules and regulations. None of the NEO's were credited with above market or preferential earnings under the Deferred Compensation Plan for the periods covered in the table, except for Mr. Keating who was credited with $415 of above market or preferential earnings during 2017. All of these plans are discussed in more detail in the Compensation Discussion and Analysis. |
| |
(5) | The following table sets forth the amounts of other compensation, including perquisites, paid to, or on behalf of, named executive officers during 2018 included in the “All Other Compensation” column. Perquisites and other personal benefits are valued on the basis of the aggregate incremental cost to the Company. |
|
| | | | | | | | | | | | | | | | | | | |
| | Mr. Keating | | Mr. Starr | | Mr. Barnhart | | Mr. Lariviere | | Mr. Lisle |
| Senior Executive Life Insurance |
| $8,323 |
| |
| $2,196 |
| |
| $4,284 |
| |
| $4,937 |
| |
| $1,757 |
|
| 401(k) Plan Matching Contribution |
| $13,750 |
| |
| $13,750 |
| |
| $13,750 |
| |
| $13,750 |
| |
| $13,750 |
|
| Supplemental Deferred Compensation |
| $193,250 |
| |
| $55,457 |
| |
| $24,305 |
| |
| $24,395 |
| |
| $36,704 |
|
| Dividends on Restricted Stock & RSUs |
| $12,000 |
| |
| $998 |
| |
| $1,600 |
| |
| $4,113 |
| |
| $57 |
|
| Annual Physical & Wellness Incentive |
| $2,950 |
| |
| $4,025 |
| |
| $2,950 |
| | — |
| | — |
|
| Vehicle Allowance |
| $33,420 |
| |
| $26,460 |
| |
| $26,460 |
| |
| $26,460 |
| |
| $20,448 |
|
| Personal Use of Corporate Aircraft |
| $19,366 |
| | — |
| | — |
| | — |
| | — |
|
| Other |
| $26 |
| |
| $26 |
| | — |
| | — |
| |
| $26 |
|
| Totals |
| $283,085 |
| |
| $102,912 |
| |
| $73,349 |
| |
| $73,655 |
| |
| $72,742 |
|
| |
(6) | First became a Named Executive Officer in our 2018 fiscal year. Compensation information for 2017 and 2016 has been omitted pursuant to applicable SEC rules and regulations. |
| |
(7) | First became a Named Executive Officer in our 2017 fiscal year. Compensation information for 2016 has been omitted pursuant to applicable SEC rules and regulations. |
Employment and Change in Control Agreements
We currently have employment agreements with Messrs. Keating and Starr. Messrs. Barnhart, Lariviere and Lisle do not have employment agreements. We currently have change in control agreements with each of our Named Executive Officers, the terms of which are summarized below under the caption, "Post-Termination Payments and Benefits."
The employment agreements generally renew each year for additional one-year renewal periods unless, at least ninety days before the end of the then-current term, the Company or the executive notifies the other that the agreement in question shall terminate upon its scheduled expiration date. The elements of compensation and benefits that are reflected in the Summary Compensation Table were provided according toStock Awards column reflect the termsaggregate grant date fair value of the employment agreementsrestricted stock awards and the compensation and benefit plans in place during 2018; however, the Company reserves the right to change the terms and conditions of its compensation and benefit plans. These agreements further provide for participation in our employee benefit programs generally applicable to our senior executives, except that Mr. Keating is entitled to continued premium payments for his lifetime under our Senior Executive Life Insurance Program. The estimated post-termination compensation payableperformance share units granted to our Named Executive Officers in accordance with FASB Accounting Standards Codification Topic 718 ("ASC 718"). For a discussion of valuation assumptions, see Note 22, Share-Based Arrangements, in our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. Award value shown for Mr.Starr represents the full award value at time of grant, however upon his termination he became entitled to his PSU's calculated as a pro-rated amount for time he held the CFO position for the three-year performance period beginning January 1, 2021.
(2)Amounts shown in the Option Awards column reflect the aggregate grant date fair value of stock options granted to our Named Executive Officers in accordance with ASC 718. For a discussion of valuation assumptions, see Note 22, Share-Based Arrangements, in our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
(3)Amounts for 2021 represent annual cash incentive awards earned by the Named Executive Officers under our annual cash incentive plans, which are discussed in the Compensation Discussion and Analysis, but do not reflect amounts that cannot yet be determined but which may become due under outstanding cash-based LTIP Awards with performance periods ended December 31, 2021. Only Messrs. Starr and Lisle have such cash-based LTIP Awards. The Company will prepare and file a Current Report on Form 8-K disclosing the actual payouts in respect of these agreementsawards promptly after they are determined and approved by the Committee in June 2022. Amounts shown for Messrs. Starr and Lisle in respect of 2020 have been adjusted to reflect the LTIP payouts approved in June 2021 in respect of cash-based LTIP Awards with performance periods ended December 31, 2020. Similarly, the amount shown for Mr. Lisle in respect of 2019 has been adjusted to reflect the LTIP payout approved in June 2020 in respect of a cash-based LTIP Awards with a performance period ended December 31, 2019. Our LTIP Award program is describeddiscussed in more detail belowin the Compensation Discussion and Analysis.
(4)Represents, to the extent applicable, the aggregate of (i) the total year-over-year change in actuarial present value of accrued benefits under our defined benefit pension plan (which was closed to new hires as of March 10, 2010 and under which benefits ceased accruing as of December 31, 2015), and (ii) above market or preferential earnings credited under the caption, "Post-Termination PaymentsCompany's non-qualified Deferred Compensation Plan. Only Messrs. Coogan and Benefits."Starr have accrued benefits under our defined benefit pension plan, and the 2021 year-over-year change in actuarial present value of their accrued benefits was a negative $14,843 and $17,456, respectively. Since these amounts are negative they are not included in the table pursuant to applicable SEC rules and regulations. All of these plans are discussed in more detail in the Compensation Discussion and Analysis that follows.
Grants(5)The following table sets forth the amounts of Plan-Based Awardsother compensation, including perquisites, paid to, or on behalf of, Named Executive Officers during 2021 included in 2018 Fiscal Yearthe “All Other Compensation” column. Perquisites and other personal benefits are valued on the basis of the aggregate incremental cost to the Company.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mr. Walsh | | Mr. Coogan | | Mr. Starr | | Mr. Bartlett | | Mr. Lisle | | Ms. Samson |
| Senior Executive Life Insurance | $3,370 | | | $693 | | | $2,085 | | | $4,741 | | | $2,568 | | | $939 | |
| 401(k) Plan Matching Contribution | $14,500 | | $14,500 | | | $14,500 | | | $14,500 | | | $14,500 | | | $12,687 | |
| Supplemental Deferred Compensation | $52,250 | | $9,077 | | | — | | | $13,969 | | | $26,114 | | | — | |
| Dividends on RSAs and RSUs | $45,445 | | | $1,610 | | | $1,348 | | $1,590 | | $1,173 | | $1,461 |
| Severance | — | | | — | | | $1,804,972 | | — | | | — | | | — | |
| Annual Physical & Wellness Incentive | — | | | — | | | — | | | — | | | — | | | — | |
| Medical Expense Reimbursement Plan | — | | | — | | | — | | | — | | | — | | | — | |
| Personal Use of Corporate Aircraft | $1,275 | | — | | | — | | | — | | | — | | | $41,064 |
| Relocation Expenses | $42,229 | | | — | | | — | | | — | | | — | | | — | |
| Other | $287 | | | $26 | | | — | | | $28 | | | $26 | | | $26 | |
| Totals | $159,356 | | | $25,906 | | | $1,822,905 | | | $34,828 | | | $44,381 | | | $56,177 | |
(6) Messrs. Walsh and Coogan first became Named Executive Officers in 2020. Compensation information for 2019 has been omitted pursuant to applicable SEC rules and regulations.
(7) Mr. Bartlett and Ms. Samson first became Named Executive Officers in 2021. Compensation information for 2019 and 2020 has been omitted pursuant to applicable SEC rules and regulations.
GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL YEAR 2021
The following grants were made during the 20182021 fiscal year to our Named Executive Officers pursuant to the Company’s Amended and Restated 2013 Management Incentive Plan.
GRANTS OF PLAN-BASED | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | | All Other Stock Awards: Number of Shares of Stock or Units (3) (#) | | All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) | | Exercise or
Base Price
of Option
Awards
($/Sh) | | Grant Date Fair Value of Stock and Option Awards(4) ($) |
| Executive | | Grant
Date | | Threshold
($) | | Target
($) | | Maximum
($) | | Threshold
(#) | | Target
(#) | | Maximum
(#) | |
| I. Walsh | | 2/22/2021 | | — | | | $725,000 | | $1,450,000 | | 13,033 | | | 26,065 | | | 52,130 | | | 19,385 | | | — | | | — | | | $56.40 |
| J. Coogan | | 2/22/2021 | | — | | | $162,658 | | $325,315 | | 1,010 | | | 2,020 | | | 4,040 | | | 675 | | | — | | | — | | | $56.40 |
R. Starr (5) | | 2/22/2021 | | — | | | — | | | — | | | 5,058 | | | 10,115 | | | 20,230 | | | 3,370 | | | — | | | — | | | $56.40 |
| R. Bartlett | | 2/22/2021 | | — | | | $262,650 | | $525,300 | | 3,978 | | | 7,955 | | | 15,910 | | | 2,650 | | | — | | | — | | | $56.40 |
| S. Lisle | | 2/22/2021 | | — | | | $248,243 | | $496,485 | | 2,933 | | | 5,865 | | | 11,730 | | | 1,955 | | | — | | | — | | | $56.40 |
| K. Samson | | 2/22/2021 | | — | | | $115,360 | | $230,720 | | 1,030 | | | 2,060 | | | 4,120 | | | 685 | | | — | | | — | | | $56.40 |
| | 1/18/2021 | | — | | | — | | | — | | | — | | | — | | | — | | | 1,750 | | | — | | | — | | | $56.82 |
(1)Represents an annual cash incentive award granted under the Amended and Restated 2013 Management Incentive Plan in respect of 2021 performance. Satisfaction or achievement of the underlying performance criteria, and the resulting award payouts, were determined in February 2022. The maximum value of any annual cash incentive award granted under the Amended and Restated 2013 Management Incentive Plan in effect at the time of grant may not exceed $4,000,000. Mr. Coogan's target is based on a pro-rated amount, given his role transitioned effective July 8, 2021.
(2)Represents PSU's granted under the Amended and Restated 2013 Management Incentive Plan for the 2021-2023 performance cycle. If the Company's performance does not meet the pre-established "Threshold" level performance targets, the NEOs would not be entitled to a payout.
(3)Represents a restricted stock award ("RSA") under the Amended and Restated 2013 Management Incentive Plan. Restrictions lapse at a rate of 33.33% per year, beginning March 1 of the year following the grant date. Dividends are paid on the shares at the same rate paid to other shareholders. The shares underlying the RSA are included in the stock ownership table and are counted toward the Named Executive Officers' compliance with stock ownership guidelines.
(4)Represents the closing price of the Company's common stock on the New York Stock Exchange on the date of grant.
(5)Mr. Starr ceased to be the Chief Financial Officer of the Company on July 8, 2021 and served as an Executive Vice President through July 31, 2021. On July 8, 2021, the Committee approved Amendment No. 1 (the “Amendment”) to Mr. Starr’s Executive Employment Agreement, dated as of November 18, 2014, by and between the Company and Mr. Starr (the “Executive Employment Agreement”). The Amendment modifies the compensation and severance benefits that Mr. Starr was entitled to receive upon the termination of his employment and the fulfillment of all necessary conditions precedent set forth in the Executive Employment Agreement. In brief, the Amendment provides that the lump-sum severance benefit paid to Mr. Starr would be based, in part, on a multiple of his current target bonus rather than the most recent annual bonus actually paid. The PSU's granted to Mr. Starr were forfeited upon separation from the Company.
OUTSTANDING EQUITY AWARDS TABLE
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | All Other Option Awards: Number of Securities Underlying Options (#) | | Exercise or Base Price of Option Awards ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($) |
| Name | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | |
| Neal J. Keating | | 2/20/2018(1) | | — |
| | $1,050,000 | | $2,100,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/20/2018(2) | | — |
| | $3,000,000 | | $6,000,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Robert D. Starr | | 2/20/2018(1) | | — |
| | $314,600 | | $629,200 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/20/2018(2) | | — |
| | $706,500 | | $1,413,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Richard R. Barnhart | | 2/20/2018(1) | | — |
| | $300,544 | | $601,088 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 2/20/2018(2) | | — |
| | $675,000 | | $1,350,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/20/2018(3) | | — |
| | $675,000 | | $1,350,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/20/2018(4) | | — |
| | $675,000 | | $1,350,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Alphonse J. Lariviere, Jr. | | 2/20/2018(1) | | — |
| | $273,829 | | $547,658 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 2/20/2018(2) | | — |
| | $615,000 | | $1,230,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/20/2018(3) | | — |
| | $615,000 | | $1,230,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/20/2018(4) | | — |
| | $615,000 | | $1,230,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/20/2018(5) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,900 |
| | — |
| | — |
| | $62.46 |
| | | 2/20/2018(6) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11,500 |
| | $62.46 | | — |
|
| Shawn G. Lisle | | 2/20/2018(1) | | — |
| | $220,399 | | $440,798 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | 2/20/2018(2) | | — |
| | $409,500 | | $819,000 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| |
(1) | Represents an annual cash incentive award granted under the 2013 Management Incentive Plan in respect of 2018 performance. Satisfaction or achievement of the underlying performance criteria, and the resulting award payouts, were determined in February 2019. The maximum value of any annual cash incentive award granted under the 2013 Management Incentive Plan in effect at the time of grant may not exceed $3,000,000. |
| |
(2) | Represents a cash-based long-term incentive award granted under the 2013 Management Incentive Plan for the 2018-2020 performance cycle. The maximum value of any long-term cash incentive award granted under the 2013 Management Incentive Plan in effect at the time of grant may not exceed $8,000,000. |
| |
(3) | Represents a cash-based long-term incentive award granted under the 2013 Management Incentive Plan for the 2018-2019 performance cycle. The maximum value of any long-term cash incentive award granted under the 2013 Management Incentive Plan in effect at the time of grant may not exceed $8,000,000. |
| |
(4) | Represents a cash-based long-term incentive award granted under the 2013 Management Incentive Plan for the 2018-2018 performance cycle. The maximum value of any long-term cash incentive award granted under the 2013 Management Incentive Plan in effect at the time of grant may not exceed $8,000,000. |
| |
(5) | Represents a restricted stock award under the 2013 Management Incentive Plan, for which restrictions lapse at a rate of 20% per year, beginning March 1 of the year following the grant date. Dividends are paid on the stock at the same rate that is paid to other shareholders. The stock is counted toward the named executive officers' compliance with stock ownership guidelines. |
| |
(6) | Represents stock option award under the 2013 Management Incentive Plan, for which restrictions lapse at a rate of 20% per year, beginning March 1 of the year following the grant date. Stock options grants are made with a per share exercise price equal to 100% of the stock's fair value as defined in the 2013 Management Incentive Plan on the grant date. Unvested stock options are not counted toward compliance with the Company's stock ownership guidelines. |
Outstanding Equity Awards at 2018 Fiscal Year-EndAT FISCAL YEAR 2021 YEAR-END
The following table lists the outstanding stock options and stock awards at December 31, 2018,2021, for each of our Named Executive Officers.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Option Awards | | Stock Awards |
| Executive | | Grant Date | | Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | | Option
Exercise
Price
($) | | 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(2) ($) | | Equity Incentive Plan Awards:
Number of Unearned Shares, Units or Other Rights that Have Not Vested
(#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested(2) ($) |
| Ian K. Walsh | | 9/8/2020 | | — | | | — | | | — | | | | | 28,178 | | (3) | | $1,215,881 | | — | | | | — | |
| | 2/22/2021 | | — | | | — | | | | — | | | | | 19,385 | | (8)(9) | | $836,463 | | 26,065 | | | | $1,124,705 |
| James G. Coogan | | 2/19/2014 | | 850 | | | — | | | $39.22 | | 2/19/2024 | | — | | | | — | | | — | | | | — | |
| | 2/17/2015 | | 1,236 | | | — | | | $39.54 | | 2/17/2025 | | — | | | | — | | | — | | | | — | |
| | 2/23/2016 | | 3,680 | | | — | | | | $42.86 | | 2/23/2026 | | — | | | | — | | | — | | | | — | |
| | 2/17/2017 | | 3,032 | | | 758 | | | | $51.97 | | 2/17/2027 | | 127 | | (4)(9) | | $5,480 | | — | | | | — | |
| | 2/20/2018 | | 2,304 | | | 1,536 | | | | $62.46 | | 2/20/2028 | | 254 | | (5)(9) | | $10,960 | | — | | | | — | |
| | 2/18/2019 | | 1,432 | | | 2,148 | | | | $61.02 | | 2/18/2029 | | 396 | | (6)(9) | | $17,087 | | — | | | | — | |
| | 2/17/2020 | | 847 | | | 3,388 | | | | $64.48 | | 2/17/2030 | | 560 | | (7)(9) | | $24,164 | | — | | | | — | |
| | 2/22/2021 | | — | | | — | | | | — | | | | | 675 | | (8)(9) | | $29,126 | | 2,020 | | | | $87,163 |
| Robert D. Starr | | | | — | | | — | | | — | | | | 3,370 | | (8)(9) | | $145,416 | | — | | | | — | |
| Russell J. Bartlett | | 2/22/2021 | | — | | | — | | | — | | | | | 2,650 | | (8)(9) | | $114,348 | | 7,955 | | | | $343,258 |
| Shawn G. Lisle | | 2/18/2013 | | 3,620 | | | — | | | $36.29 | | 2/18/2023 | | — | | | | — | | | — | | | | — | |
| | 2/22/2021 | | — | | | — | | | | — | | | | | 1,955 | | (8)(9) | | $84,358 | | 5,865 | | | | $253,075 |
| Kristen Samson | | 1/18/2021 | | — | | | — | | | — | | | | | 1,750 | | | | $75,513 | | — | | | | — | |
| | 2/22/2021 | | — | | | — | | | — | | | | | 685 | | (8)(9) | | $29,558 | | 2,060 | | | | $88,889 |
(1)Unless otherwise stated, options vest at the rate of 20% per year, beginning March 1 of the year following the grant date and have a term of 10 years. Vesting of these awards may be accelerated upon death, disability, retirement or upon termination of employment following a change in control event, or in other termination of employment circumstances in accordance with the employment agreements and change in control agreements for each Named Executive Officer and otherwise as provided in the equity plans under which the awards were granted. Please see the Post-Termination Payments and Benefits section.
(2)Market value is calculated based on the closing price of the Company’s Common Stock on December 31, 2021 (the last business day of the year), which was $43.15.
(3)Represents a time-based restricted share unit award granted on September 8, 2020. The award will fully vest on September 8, 2023.
(4)Represents a time-based restricted share award granted on February 17, 2017.
(5)Represents a time-based restricted share award granted on February 20, 2018.
(6)Represents a time-based restricted share award granted on February 18, 2019.
(7)Represents a time-based restricted share award granted on February 17, 2020.
(8)Represents a time-based restricted share award granted on February 22, 2021.
(9)Restrictions on all time-based restricted share awards granted prior to 2021 lapse at the rate of 20% per year, beginning March 1 of the year following the grant date. All time-based restricted share awards granted 2021 and beyond lapse at the rate of 33.3% per year, beginning March 1 of the year following the grant date. Lapsing of restrictions may be accelerated upon death, disability, retirement or upon termination of employment following a change in control event, or in other termination of employment circumstances in accordance with the employment agreements and change in control agreements for each Named Executive Officer and otherwise as provided in the equity plans under which the awards were granted. Please see the Post-Termination Payments and Benefits section.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
| Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | | Option Exercise Price ($) | | 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(2) ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested(2) ($) |
| Neal J. Keating | | — |
| | — |
| | — | | | — |
| | — |
| | | — |
| | — |
| | | — |
|
| Robert D. Starr | | 6,310 |
| | — |
| | $26.07 | | | 2/22/2020 |
| | — |
| | | — |
| | — |
| | | — |
|
| | | 5,260 |
| | — |
| | $31.78 | | | 2/21/2021 |
| | — |
| | | — |
| | — |
| | | — |
|
| | | 5,220 |
| | — |
| | $33.59 | | | 2/20/2022 |
| | — |
| | | — |
| | — |
| | | — |
|
| | | 5,135 |
| | — |
| | $36.29 | | | 2/18/2023 |
| | — |
| | | — |
| | — |
| | | — |
|
| | | 12,376 |
| | 3,094 |
| | $39.22 | | | 2/19/2024 |
| | 928 |
| (3)(9) | | $52,052 | | — |
| | | — |
|
| Richard R. Barnhart | | | | | | | | | | 1,600 |
| (7)(9) | | $89,744 | | | | | |
| Alphonse J. Lariviere, Jr. | | 1,100 |
| | — |
| | $36.29 | | | 2/18/2023 |
| | — |
| | | — |
| | — |
| | | — |
|
| | | 1,132 |
| | 1,132 |
| | $39.22 | | | 2/19/2024 |
| | 340 |
| (3)(9) | | $19,071 | | — |
| | | — |
|
| | | 1,434 |
| | 2,868 |
| | $39.54 | | | 2/17/2025 |
| | 674 |
| (4)(9) | | $37,805 | | — |
| | | — |
|
| | | 3,502 |
| | 5,253 |
| | $42.86 | | | 2/23/2026 |
| | 1,062 |
| (5)(9) | | $59,568 | | — |
| | | — |
|
| | | 1,804 |
| | 7,216 |
| | $51.97 | | | 2/17/2027 |
| | 1,212 |
| (6)(9) | | $67,981 | | — |
| | | — |
|
| | | — |
| | 11,500 |
| | $62.46 | | | 2/20/2028 |
| | 1,900 |
| (8)(9) | | $106,571 | | — |
| | | — |
|
| Shawn G. Lisle | | 3,620 |
| | — |
| | $36.29 | | | 2/18/2023 |
| | — |
| | | — |
| | — |
| | | — |
|
| |
(1) | Unless otherwise stated, options vest at the rate of 20% per year, beginning March 1 of the year following the grant date and have a term of 10 years. Vesting of these awards may be accelerated upon death, disability, retirement or upon termination of employment following a change in control event, or in other termination of employment circumstances in accordance with the employment agreements and change in control agreements for each Named Executive Officer and otherwise as provided in the equity plans under which the awards were granted. Please see the Post-Termination Payments and Benefits section. |
| |
(2) | Market value is calculated based on the closing price of the Company’s Common Stock on December 31, 2018 (the last business day of the year), which was $56.09. |
| |
(3) | Represents a time-based restricted share award granted on February 19, 2014. |
| |
(4) | Represents a time-based restricted share award granted on February 17, 2015. |
| |
(5) | Represents a time-based restricted share award granted on February 23, 2016. |
| |
(6) | Represents a time-based restricted share award granted on February 17, 2017. |
| |
(7) | Represents a time-based restricted share award granted on November 13, 2017. |
| |
(8) | Represents a time-based restricted share award granted on February 17, 2018. |
| |
(9) | Restrictions on all time-based restricted share awards lapse at the rate of 20% per year, beginning March 1 of the year following the grant date. Lapsing of restrictions may be accelerated upon death, disability, retirement or upon termination of employment following a change in control event, or in other termination of employment circumstances in accordance with the employment agreements and change in control agreements for each Named Executive Officer and otherwise as provided in the equity plans under which the awards were granted. Please see the Post-Termination Payments and Benefits section. |
Option Exercises and Stock Vested in Fiscal Year 20182021
The following table provides information about the value realized by our Named Executive Officers on the exercise of stock options and the lapse of restrictions with respect to restricted stock awards during the 20182021 fiscal year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Option Awards | | | Stock Awards |
| Executive | Number of
Shares
Acquired on
Exercise
(#) | | Value Realized on Exercise(1) ($) | | Exercise
Date | | Number of
Shares
Acquired on
Vesting
(#) | | Value Realized on Vesting(2) ($) | | Vesting
Date |
| Ian K. Walsh | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | |
| James G. Coogan | — | | | | — | | | | — | | | | 149 | | | | | $7,250 | | | 3/1/2021 | |
| — | | | | — | | | | — | | | | 127 | | | | | $6,180 | | | 3/1/2021 | |
| — | | | | — | | | | — | | | | 127 | | | | | $6,180 | | | 3/1/2021 | |
| — | | | | — | | | | — | | | | 132 | | | | | $6,423 | | | 3/1/2021 | |
| — | | | | — | | | | — | | | | 140 | | | | | $6,812 | | | 3/1/2021 | |
| Robert D. Starr | — | | | | — | | | | — | | | | 3,370 | | | | | $151,819 | | | 7/31/2021 | |
| Russell J. Bartlett | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | |
| Shawn G. Lisle | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | |
| Kristen M. Samson | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | |
(1)These amounts differ from those shown in the Summary Compensation Table. The amounts shown in the Summary Compensation Table for stock options represent the aggregate grant date fair value of awards made during 2021 in accordance with ASC 718. The amounts identified above represent the value actually received for all options (including previously vested but unexercised options) exercised in 2021 measured as the difference between the fair market value of a share of our Common Stock on the day the option was exercised and the exercise price of the option.
(2)These amounts differ from those shown in the Summary Compensation Table. The value of restricted stock awards included in the Summary Compensation Table represents the aggregate grant date fair value of awards made during 2021 valued in accordance with ASC 718. The amount shown above for restricted stock awards represents the actual value of the restricted stock awards on the date restrictions lapsed, determined based on the fair market value of a share of our Common Stock on that date.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | | Stock Award |
| Name | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise(1) ($) | | Exercise Date | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting(2) ($) | | Vesting Date |
| Neal J. Keating | — |
| | | — |
| | | — |
| | | — |
| | | | — |
| | | — |
| |
| Robert D. Starr | — |
| | | — |
| | | — |
| | | 352 |
| | | | $21,549 | | | 3/1/2018 |
| |
| | — |
| | | — |
| | | — |
| | | 928 |
| | | | $56,812 | | | 3/1/2018 |
| |
| Richard R. Barnhart | — |
| | | — |
| | | — |
| | | 400 |
| | | | $23,080 | | | 11/13/2018 |
| |
| Alphonse J. Lariviere, Jr. | — |
| | | — |
| | | — |
| | | 377 |
| | | | $23,080 | | | 3/1/2018 |
| |
| | — |
| | | — |
| | | — |
| | | 340 |
| | | | $20,815 | | | 3/1/2018 |
| |
| | — |
| | | — |
| | | — |
| | | 354 |
| | | | $21,672 | | | 3/1/2018 |
| |
| | — |
| | | — |
| | | — |
| | | 337 |
| | | | $20,631 | | | 3/1/2018 |
| |
| | — |
| | | — |
| | | — |
| | | 303 |
| | | | $18,550 | | | 3/1/2018 |
| |
| Shawn G. Lisle | — |
| | | — |
| | | — |
| | | 283 |
| | | | $17,325 | | | 3/1/2018 |
| |
| |
(1) | These amounts differ from those shown in the Summary Compensation Table. The amounts shown in the Summary Compensation Table for stock options represent the aggregate grant date fair value of awards made during 2018 in accordance with ASC 718. The amounts identified above represent the value actually received for all options (including previously vested but unexercised options) exercised in 2018 measured as the difference between the fair market value of a share of our Common Stock on the day the option was exercised and the exercise price of the option. |
| |
(2) | These amounts differ from those shown in the Summary Compensation Table. The value of restricted stock awards included in the Summary Compensation Table represents the aggregate grant date fair value of awards made during 2018 valued in accordance with ASC 718. The amount shown above for restricted stock awards represents the actual value of the restricted stock awards on the date restrictions lapsed, determined based on the fair market value of a share of our Common Stock on that date. |
Pension Benefits
The table below shows the present value of accumulated benefits payable to each of our named executive officersNamed Executive Officers at age 65 and the number of years of service credited to each of them under the Kaman Corporation Employees’ Pension Plan, which we call the "pension plan," and the SERP as of December 31, 2018.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Plan Name | | Number of Years of Credited Service(1) (#) | | Present Value of Accumulated Benefit(2) ($) | | Payments
During Last
Fiscal Year
($) |
Ian K. Walsh(4) | | Kaman Corporation Employees’ Pension Plan | | — | | | | — | | | | | — | | |
| | SERP | | — | | | | — | | | | | — | | |
James G. Coogan(3) | | Kaman Corporation Employees’ Pension Plan | | 7.1 | | | | $139,879 | | | | — | | |
| | SERP | | — | | | | — | | | | | — | | |
Robert D. Starr(3) | | Kaman Corporation Employees’ Pension Plan | | 6.9 | | | | $323,499 | | | | — | | |
| | SERP | | — | | | | — | | | | | — | | |
Russell J. Bartlett(4) | | Kaman Corporation Employees’ Pension Plan | | — | | | | — | | | | | — | | |
| | SERP | | — | | | | — | | | | | — | | |
Shawn G. Lisle(4) | | Kaman Corporation Employees’ Pension Plan | | — | | | | — | | | | | — | | |
| | SERP | | — | | | | — | | | | | — | | |
Kristen M. Samson(4) | | Kaman Corporation Employees’ Pension Plan | | — | | | | — | | | | | — | | |
| | SERP | | — | | | | — | | | | | — | | |
|
| | | | | | | | | | | | | | | |
| Name | | Plan Name | | Number of Years of Credited Service(1) (#) | | Present Value of Accumulated Benefit(2) ($) | | Payments During Last Fiscal Year ($) |
Neal J. Keating | | Kaman Corporation Employees’ Pension Plan | | 8.4 |
| | | $424,796 | | | | — |
| |
| | | SERP | | 8.4 |
| | | $1,676,776 | | | | — |
| |
Robert D. Starr(3) | | Kaman Corporation Employees’ Pension Plan | | 6.9 |
| | | $212,994 | | | | — |
| |
| | | SERP | | — |
| | | — |
| | | | — |
| |
Richard R. Barnhart(4) | | Kaman Corporation Employees’ Pension Plan | | — |
| | | — |
| | | | — |
| |
| | | SERP | | — |
| | | — |
| | | | — |
| |
Alphonse J. Lariviere, Jr. (3) | | Kaman Corporation Employees’ Pension Plan | | 11.7 |
| | | $482,407 | | | | — |
| |
| | | SERP | | — |
| | | — |
| | | | — |
| |
Shawn G. Lisle(4) | | Kaman Corporation Employees’ Pension Plan | | — |
| | | — |
| | | | — |
| |
| | | SERP | | — |
| | | — |
| | | | — |
| |
| |
(1) | The pension plan was closed to new hires during 2010 and years of service credits for those already in the plan ceased to accrue as of December 31, 2015. Thus, the number of years of credited service reflected in the table do not correspond to the number of years that a named participant has been employed by the Company. |
| |
(2) | Represents the present value of accrued benefits under our pension plan and SERP based upon the following assumptions: (a) for the pension plan, that each executive is employed until retirement and his benefits commence at the earlier of normal retirement age (generally, age 65) or the earliest age at which an unreduced pension could be received (e.g., age 63 with 30 years of service) and (b) for the SERP, the change to interest rate methodology required under the Pension Protection Act of 2006 and elimination of pre-retirement mortality assumptions because SERP benefits are payable as a lump sum. Please see Note 15, Pension Plans, in our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, for a description of material assumptions. |
| |
(3) | Messrs. Lariviere and Starr do not participate in the SERP because the pension plan was frozen prior to their appointments as executive officers. |
| |
(4) | Messrs. Barnhart and Lisle do not participate in the pension plan or the SERP because the pension plans were closed to new hires before they joined the Company. |
(1)The pension plan was closed to new hires during 2010 and years of service credits for those already in the plan ceased to accrue as of December 31, 2015. Thus, the number of years of credited service reflected in the table do not correspond to the number of years that a named participant has been employed by the Company.
(2)Represents the present value of accrued benefits under our pension plan and SERP based upon the following assumptions: (a) for the pension plan, that each executive is employed until retirement and his benefits commence at the earlier of normal retirement age (generally, age 65) or the earliest age at which an unreduced pension could be received (e.g., age 63 with 30 years of service) and (b) for the SERP, the change to interest rate methodology required under the Pension Protection Act of 2006 and elimination of pre-retirement mortality assumptions because SERP benefits are payable as a lump sum. Please see Note 17, Pension Plans, in our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, for a description of material assumptions.
(3)Messrs. Starr and Coogan do not participate in the SERP because the pension plan was frozen prior to their appointments as executive officers.
(4)Messrs. Walsh, Lisle, Bartlett and Ms. Samson do not participate in the pension plan or the SERP because the pension plans were closed to new hires before they joined the Company.
The pension plan is a tax-qualified plan that provides benefits for full-time U.S. employees hired prior to June 1, 2009, at Kaman Industrial Technologies, and prior to March 1, 2010, at Kaman Corporation and other participating subsidiaries (with the exception of certain acquired companies that have not adopted the pension plan). Employees became participants upon their completion of certain hours of service requirements and became vested in their pension benefits generally upon attaining five years of continuous service, as defined by the pension plan. Normal retirement, as defined by the pension plan, is generally age 65, but employees may retire as early as age 55 with 5 years of service in accordance with pension plan provisions. The annual benefit under the pension plan is generally 60 percent of the average of the highest five years of "Covered Compensation" out of the final ten years of employment through December 31, 2010, less 50 percent of the primary social security benefit, reduced proportionately for years of service less than 30 years. At Kaman Corporation, the parent company, participants who joined the company prior to 2004, have 30 years of service, and have attained age 63, are permitted to retire with a pension benefit unreduced for early retirement. None of the Named Executive Officers is eligible for the unreduced pension. The pension plan limits the amount of pension benefits that may be provided to participants under this formula in accordance with certain limits under federal tax laws. To the extent these limits apply to certain executive officers, the Company provides an additional benefit under the SERP program. Except as provided below, our SERP program generally makes each participant whole for the benefits under the retirement formula described above that could not be provided under the pension plan due to these limits. Only salary and annual bonus amounts are treated as pensionable earnings on and after January 1, 2006. Benefits under the SERP are based on the highest five years of pensionable earnings over the last ten years through December 31, 2010, whether or not consecutive. The SERP has been amended to comply with the requirements of Section 409A of the Code.
The pension plan was closed to new hires on or after March 1, 2010. Existing employees at that time continue to participate in the pension plan subject to the following changes when calculating pension benefits: (i) changes in pay after 2010 are disregarded; (ii) compensation in the highest five years out of the last ten years of service prior to 2011 will be taken into account, whether or not consecutive; and (iii) a participant’s years of service as defined by the pension plan continued to count for accruing benefits under the pension plan through December 31, 2015. Corresponding changes were made to the SERP to assure consistency with the pension plan changes. These changes did not affect individuals who were already retired or had terminated employment and were vested in their pension benefit.
Non-Qualified Deferred Compensation Plan
The following table presents contribution, earnings and balance information under the Company’s Deferred Compensation Plan for our Named Executive Officers for 2018:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Executive Contributions in Last FY(1) ($) | | Registrant Contributions in Last FY(2) ($) | | Aggregate Earnings in Last FY(3) ($) | | Aggregate Withdrawals/ Distributions(4) ($) | | Aggregate Balance at Last FYE(5) ($) |
| Ian K. Walsh | | | — | | | | | $52,250 | | | | — | | | | | — | | | | | $52,250 | | |
| James G. Coogan | | | — | | | | | $9,077 | | | | $691 | | | | | — | | | | | $61,343 | | |
| Robert D. Starr | | | $32,797 | | | | | — | | | | | $25,011 | | | | | — | | | | | $1,899,888 | | |
| Russell J. Bartlett | | | — | | | | | $13,969 | | | | — | | | | | — | | | | | $13,969 | |
| Shawn G. Lisle | | | — | | | | | $26,114 | | | | $3,844 | | | | | — | | | | | $317,003 | | |
| Kristen M. Samson | | | $7,126 | | | | — | | | | | $249 | | | | | — | | | | | $7,375 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Executive Contributions in Last FY(1) ($) | | Registrant Contributions in Last FY(2) ($) | | Aggregate Earnings in Last FY(3) ($) | | Aggregate Withdrawals/ Distributions(4) ($) | | Aggregate Balance at Last FYE(5) ($) |
Neal J. Keating(6) | | |
| $551,875 |
| | | |
| $193,250 |
| | | |
| $25,166 |
| | | | — |
| | | |
| $2,934,289 |
| |
| Robert D. Starr | | |
| $165,915 |
| | | |
| $55,457 |
| | | |
| $32,272 |
| | | | — |
| | | |
| $1,247,746 |
| |
| Richard R. Barnhart | | |
| $22,809 |
| | | |
| $24,305 |
| | | |
| ($1,972 | ) | | | | — |
| | | |
| $45,142 |
| |
| Alphonse J. Lariviere, Jr. | | | — |
| | | |
| $24,395 |
| | | |
| $2,553 |
| | | | — |
| | | |
| $113,207 |
| |
| Shawn G. Lisle | | | — |
| | | |
| $36,704 |
| | | |
| $4,322 |
| | | | — |
| | | |
| $187,133 |
| |
| |
(1) | Represents the aggregate of (i) the elective contribution, if any, of a portion of the NEO's base salary (which amount, if any, is also included in the 2018 "Salary" column of the Summary Compensation Table) and (ii) the elective contribution, if any, of a portion of the NEO's annual cash incentive award for 2018 (which amount, if any, is also included in the 2018 "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table). |
| |
(2) | Represents the Company contribution to each NEO's Deferred Compensation Plan account in respect of each NEO's 2018 compensation even though such amounts were not credited until 2019 (which amounts are also included in the 2018 "All Other Compensation" column of the Summary Compensation Table). |
| |
(3) | Represents the aggregate earnings on each NEO's Deferred Compensation Plan account balance during 2018. To the extent that the aggregate earnings of any particular NEO during 2018 exceeded the investment performance that would have been attained had his entire account been credited with interest at the Interest Crediting Rate for 2018, the excess has been reported in the 2018 "Change in Pension Value and Nonqualified Deferred Compensation Earnings" column of the Summary Compensation Table. |
| |
(4) | Represents the aggregate withdrawals or distributions from the Deferred Compensation Plan to each NEO during 2018. |
| |
(5) | Represents the aggregate year-end balances of each NEO under the Deferred Compensation Plan as of the end of 2018 plus Company contributions in respect of 2018 compensation that were not credited until 2019. Except for aggregate earnings on account balances that did not exceed the Interest Crediting Rate, the amounts shown in this column were previously reported in the Summary Compensation Table as "Salary," "Non-Equity Incentive Plan Compensation," "Change in Pension Value and Nonqualified Deferred Compensation Earnings" and "All other Compensation," as described above. The aggregate amounts reported in the Summary Compensation Table for 2017 and 2016 are as follows: Mr. Keating - $1,146,009; Mr. Starr - $366,181; and Mr. Lisle - $60,863; and the aggregate amount reported in the Summary Compensation Table for 2017 for Mr. Lariviere is $11,143. Mr. Lariviere first became a Named Executive Officer in 2017 and Mr. Barnhart first became a Named Executive Officer in 2018. |
| |
(6) | In addition to the amounts shown in the table, Mr. Keating has outstanding Restricted Stock Units covering 15,000 shares of Common Stock granted under the 2013 Management Incentive Plan that vested on October 13, 2017, but will not be settled until the later of six months and one day following his separation from service from the Company and January 2nd of the year following such separation from service. The Restricted Stock Units had an aggregate year-end value of $841,350 based on the closing price of the Company's Common Stock on the NYSE on December 31, 2018, which was $56.09. |
(1)Represents the aggregate of (i) the elective contribution, if any, of a portion of the NEO's base salary (which amount, if any, is also included in the 2021 "Salary" column of the Summary Compensation Table) and (ii) the elective contribution, if any, of a portion of the NEO's annual cash incentive award for 2021 (which amount, if any, is also included in the 2021 "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table).
(2)Represents the Company contribution to each NEO's Deferred Compensation Plan account in respect of each NEO's 2021 compensation even though such amounts were not credited until 2022 (which amounts are also included in the 2021 "All Other Compensation" column of the Summary Compensation Table).
(3)Represents the aggregate earnings on each NEO's Deferred Compensation Plan account balance during 2021. To the extent that the aggregate earnings of any particular NEO during 2021 exceeded the investment performance that would have been attained had his entire account been credited with interest at the Interest Crediting Rate for 2021, the excess has been reported in the 2021 "Change in Pension Value and Nonqualified Deferred Compensation Earnings" column of the Summary Compensation Table.
(4)Represents the aggregate withdrawals or distributions from the Deferred Compensation Plan to each NEO during 2021.
(5)Represents the aggregate year-end balances of each NEO under the Deferred Compensation Plan as of the end of 2021 plus Company contributions in respect of 2021 compensation that were not credited until 2021. Except for aggregate earnings on account balances that did not exceed the Interest Crediting Rate, the amounts shown in this column were previously reported in the Summary Compensation Table as "Salary," "Non-Equity Incentive Plan Compensation," "Change in Pension Value and Nonqualified Deferred Compensation Earnings" and "All other Compensation," as described above.
The Deferred Compensation Plan is a non-qualified, unfunded plan that provides certain designated executives, including the Company’s Named Executive Officers, the opportunity to defer up to 50% of their base salaries and 100% of their annual cash incentive awards for each calendar year. The plan also provides for the Company to make a supplemental deferred compensation contribution to each participant’s account in an amount equal to 10% of the participant’s eligible earnings that exceed the compensation limit established annually by the Internal Revenue Service.
Until July 11, 2016, the deferred compensation account balances of all participants were credited with interest based on an annual interest rate equal to 120% of the Applicable Federal Long-Term Rate in effect for the month of October immediately preceding the beginning of each applicable plan year (the "Interest Crediting Rate"). For the 20182021 plan year, the Interest Crediting Rate was 2.96%1.34%. Effective as of July 1, 2016, the plan was amended to make available to participants various market-based investment crediting options including five pre-constructed "model" portfolios, for the deemed investment of up to 50% of their then-existing account balances as of July 11, 2016 and 100% of their own deferral contributions after July 11, 2016. All supplemental deferred compensation contributions made by the Company will continue to be credited with interest based on the annual Interest Crediting Rate in effect from time-to-time.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2018,2021, concerning Common Stock issuable under the Company’s equity compensation plans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Plan Category | | (a)
Number of
securities to be issued
upon exercise of
outstanding
options, warrants and
rights | | (b)
Weighted-
average exercise price
of outstanding
options, warrants
and rights | | (c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)) |
| Equity compensation plans approved by security holders: | | | | | | |
| 2003 Stock Incentive Plan | | 19,249 | | | | $36.12 | | | | |
| Amended and Restated 2013 Management Incentive Plan | | 726,991 | | | | $55.64 | | | 1,412,897 | | |
| Employees Stock Purchase Plan | | — | | | | — | | | | 452,363 | | |
Equity compensation plans not approved
by security holders | | — | | | | — | | | | — | | |
| Total | | 746,240 | | | | | $55.14 | | | 1,865,260 | | |
|
| | | | | | | | | | | | | |
| Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | | (b) Weighted- average exercise price of outstanding options, warrants and rights | | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| Equity compensation plans approved by security holders: | | | | | | |
| 2003 Stock Incentive Plan | | 165,237 |
| | | $30.97 | | | | — |
| |
| 2013 Management Incentive Plan | | 770,015 |
| | | $49.12 | | | | 2,482,935 |
| |
| Employees Stock Purchase Plan | | — |
| | | — | | | | 612,109 |
| |
Equity compensation plans not approved by security holders | | — |
| | | — | | | | — |
| |
| Total | | 935,252 |
| | | | $45.91 | | | 3,095,044 |
| |
POST-TERMINATION PAYMENTS AND BENEFITS
The Company has committed to provide additional compensation to certain of our Named Executive Officers in the event of a termination of employment under specified circumstances, including in connection with a change in control of the Company. These commitments and an estimate of the additional compensation that each of our Named Executive Officers would have received if a qualifying termination of employment had occurred on December 31, 2018,2021, are set forth below.
Payment of Accrued Amounts.
Regardless of the manner in which the employment of any Named Executive Officer (including a Named Executive Officer not party to an employment agreement) terminates, he or she is entitled to receive amounts previously earned during the term of his or her employment (which amounts are referred to in this discussion as "Accrued Amounts"). Such Accrued Amounts include, but are not limited to, (i) unpaid base salary through the date of termination and any accrued vacation in accordance with Company policy; (ii) any unpaid bonus or other short-term and long-term incentive compensation (cash or equity) earned with respect to any completed fiscal year; (iii) reimbursement for any unreimbursed expenses incurred through the date of termination; and (iv) all other payments and benefits to which the Named Executive Officer may be entitled under the terms of any applicable compensation arrangement or benefit program of the Company, including any applicable pension, retirement and insurance benefits. For more information about the retirement and other benefits payable to our Named Executive Officers, please refer to the Compensation Discussion and Analysis section of this Proxy Statement.
Employment Agreements
We currently haveOn December 31, 2021, the only NEO that had an employment agreementsagreement with Messrs. Keatingthe Company was Mr. Walsh, our Chairman, President and Starr. Other thanChief Executive Officer. The employment agreement (the "Walsh Employment Agreement") was entered into by and between the Company and Mr. Walsh on August 20, 2020, with an effective date of September 8, 2020 (the "Effective Date"). The Walsh Employment Agreement provides for a three-year term of employment commencing as noted below,of the Effective Date and ending on the third anniversary of the Effective Date. The terms and conditions triggering payments under the employment agreements are substantially similar and entitle the executives to receive the compensation and benefits described below under the circumstances indicated. Messrs. Barnhart, Lariviere and Lisle currently do not have employment agreements.
Payment of Accrued Amounts. Regardless of the manner in which the employment of any Named Executive Officer (including a Named Executive Officer not party to an employment agreement) terminates, he is entitled to receive amounts previously earned during the term of his employment (which amounts are referred to in this discussion as "Accrued Amounts"). Such Accrued Amounts include, but are not limited to, (i) unpaid base salary through the date of termination and any accrued vacation in accordance with Company policy; (ii) any unpaid bonus or other short-term and long-term incentive compensation (cash or equity) earned with respect to any completed fiscal year; (iii) reimbursement for any unreimbursed expenses incurred through the date of termination; and (iv) all otherpotential payments and benefits to which the executive may be entitled under the terms of any applicable compensation arrangement or benefit program of the Company, including any applicable pension, retirement and insurance benefits. For more information about the retirement and other benefits to which the Named Executive OfficersWalsh Employment Agreement are entitled, please refer to
the discussion set forth under the captions, "Outstanding Equity Awards at 2018 Fiscal Year-End" and "Retirement Benefits" within the Summary Compensation Table section of this Proxy Statement. See also, "Pension Benefits" and "Non-Qualified Deferred Compensation Plan" within the Compensation Discussion and Analysis section.
Termination by the Company for Cause or by the Executive without Good Reason. In the event that an executive’s employment is terminated by the Company for "Cause" (other than a termination due to death or disability) or by the executive without "Good Reason," the employment agreements generally provide that the executive will be entitled to receive only the Accrued Amounts identified above.summarized below.
For purposes of the employment agreements,Walsh Employment Agreement and the discussion that follows, the term "Cause" is defined to mean and include (i) the conviction of, or a plea of guilty or nolo contendere to, a felony or any crime involving moral turpitude, dishonesty, fraud, theft or financial impropriety; or (ii) a determination by a majority of the Board, acting in good faith, that the executiveMr. Walsh has (A) willfully and continuously failed to substantially perform his duties; (B) engaged in illegal conduct, an act of dishonesty or gross misconduct, in each case which is in the course of the executive’shis employment and materially injurious to the Company; (C) willfully violated a material requirement of the Company’s Code of Conduct or the executive’s fiduciary duty to the Company; or (D) in the case of the Chief Executive Officer, violated his covenant to the Company that he is not bound to any agreement that would, among other things, limit his performance with the Company.
For purposes of the employment agreements, theThe term "Good Reason" is defined to mean any one of the following events, if it occurs without the executive’sMr. Walsh's consent after providing the Company notice and an opportunity to cure: (i) the removal of Mr. Walsh from the executive from his position with the Companyof President and Chief Executive Officer (other than for Cause); (ii) a reduction in theMr. Walsh's base salary or annual target bonus opportunity of(other than a general reduction all similarly situated executives in substantially the executive;same proportion); (iii) a failure to pay the executive’s compensation or benefits specified in accordance with the terms of the employment agreement; (iv) the relocation of the executive’sMr. Walsh's principal place of employment by more than 50 miles; or (v) the assignment of duties that are materially inconsistent with the executive’s position; or (vi) no longer being a direct report to theMr. Walsh's position as President and Chief Executive Officer ofOfficer.
Termination by the Company (for executives otherfor Cause or by the Executive without Good Reason. In the event that Mr. Walsh's employment is terminated by the Company for "Cause" (other than a termination due to death or disability) or by Mr. Walsh without "Good Reason," Mr. Walsh would be entitled to receive only the Chief Executive Officer).Accrued Amounts.
Termination by the Company without Cause or by the Executive for Good Reason. In the event that an executive’sMr. Walsh's employment is terminated by the Company without Cause (as defined above) or by the executive forMr. Walsh with Good Reason (as defined above), the employment agreements generally provide that the executive willMr. Walsh would be entitled to receive the following compensation and benefits (in addition to the Accrued Amounts):
•a pro-rata portion of the executive’shis annual bonus for the performance year in which the termination occurs, based upon actual financial performance and payable at the time that annual bonuses are paid to other senior executives of the Company;
an immediate•a lump-sum payment equal to two times the sum of the executive’shis then-current base salary and most recent annual bonus paid to, or earned by, the executive, subject to a reduction as set forth in the employment agreements if termination of employment occurs within two years of the executive’s retirement eligibility date;Mr. Walsh;
•a pro-rata payment in cash for each outstanding cash-based LTIP award for which the performance period has not been completed, based upon actual financial performance and payable as and when paid to other participants;
•continued participation in all medical, dental and vision plans which cover the executivecovering Mr. Walsh and the executive’shis eligible dependents for up to 24 months with the executive(with Mr. Walsh continuing to make his share of premium payments,payments), subject to offset due to future employment; and
•full vesting of all outstanding equity awards; and
forthe RSU granted to Mr. Starr, continued payment of life insurance premiums untilWalsh in connection with the earlier of 24 months following employment termination or attainment of age 65 (but in no event later than the executive’s retirement eligibility date) and for Mr. Keating, continued payment of life insurance premiums for the remaindercommencement of his life.
Termination Due to Retirement.employment. In the event that an executive retires from the employ of the Company on or after his retirement eligibility date, the employment agreements generally provide that the executive will be entitled to receive the following benefits (in addition to the Accrued Amounts):
a pro-rata portion of the executive’s annual bonus for the performance year in which the executive’s retirement occurs, based upon actual financial performance and payable at the time that annual bonuses are paid to other senior executives of the Company;
a pro-rata payment in cash of each outstanding LTIP award for which the performance period has not been completed, based upon actual financial performance and payable as and when paid to other participants;
full vesting of all outstanding equity awards; and
for Mr. Keating, continued payment of life insurance premiums for the remainder of his life provided that he retires at or after age 62.
An executive’s retirement eligibility date generally is the date on which an executive attains age 65 or such other age at or after age 62 as shall be approved by the Committee.
Termination Due to Disability or Death. In the event of theMr. Walsh's disability or death, of an executive, the employment agreements generally provide that the executiveMr. Walsh (or his estate) willwould be entitled to receive the following compensation and benefits (in addition to the Accrued Amounts):
•a pro-rata portion of the executive’shis annual bonus for the performance year in which the termination occurs based upon target performance, payable at the time that annual bonuses are paid to other senior executives;
•a pro-rata portion of payment in cash offor each outstanding cash-based LTIP award for which the performance period has not been completed, based upon actual financial performance and payable as and when paid to other participants;
•full vesting of all outstanding equity awards;the RSU granted to Mr. Walsh in connection with the commencement of his employment; and
•benefits under the Company’s disability plan or payments under the Company’s life insurance plan, as appropriate.applicable.
For purposes of the employment agreements,Walsh Employment Agreement, a "disability" is considered to exist if the executive has been absent from fully performing his responsibilities due to physical or mental illness for a period of six consecutive months.
Change in Control Agreements
We currently haveOn December 31, 2021, we had change in control agreements with each of our Named Executive Officers.Messrs. Walsh, Coogan and Lisle. Other than as noted below, the terms and conditions triggering payments under these agreements upon the termination of employment of each of oursuch Named Executive OfficersOfficer in connection with a change in control are substantially similar.
The change in control agreements generally provide that, if an executive’s employment is terminated by the Company without "Cause" (other than due to death or disability) or by the executive for "Good Reason" during the twenty-four month period immediately following a change in control (or during a potential change in control period), the executive willwould be entitled to receive the following severance benefits:
•an immediate lump-sum cash payment equal to three times the executive’s base salary, in the case of Mr. Keating,Walsh, and two times, in the case of the other Named Executive Officers, plus three times, in the case of Mr. Keating,Walsh, and two times, in the case of the other Named Executive Officers, the executive's target annual bonus in effect immediately preceding the date of termination;
•a pro-rata portion of the named executive officer’s target annual bonus for the performance year in which the termination occurs;
•continued participation at the Company’s expense for 24 months in all medical, dental and accidental death and disability plans which cover the executive and the executive’s eligible dependents, subject to offset due to future employment;
•full vesting of outstanding equity awards (at the target level of performance, where applicable);
•a pro-rata payment in cash of each outstanding cash-based LTIP award for which the performance period has not been completed, based upon the target level of financial performance;
•benefits under any post-retirement health care plans if the executive would have otherwise become eligible for those benefits by remaining employed through the second anniversary of the employment termination date, commencing on the later of the date that such coverage would have become first available and the date on which the executive’s post-employment participation in our benefit plans, as described above, terminates; and
prepayment of premiums under any life insurance policy insuring the life of the executive in the case of Mr. Keating , which shall be payable, with interest, on the date that is six months and one business day after the executive’s termination of employment and, in the case of the other named executive officers, continued payment of remaining life insurance premium payments for which the Company shall establish an irrevocable grantor trust holding assets sufficient to pay such premiums; and
•reimbursement for up to $30,000 (in the aggregate) for outplacement services until the earlier of the first anniversary of the date of termination or the first day of the executive’s employment with a new employer.
For purposes of the change in control agreements, a "change in control" is deemed to have occurred if: (i) a person unaffiliated with the Company acquires control of more than thirty-five percent of our voting securities; (ii) there is a change in
more than fifty percent of our Directors over two consecutive years which is not Board-approved; (iii) a merger is effectuated with an unrelated entity that results in our shareholders owning fifty percent or less of the voting securities of the merged entity (or its parent company); or (iv) there is a sale of substantially all of the Company’s assets to an unrelated third party or shareholder approval of a plan of complete liquidation or dissolution of the Company. A change in control does not include any related party and management buyout transactions.
For purposes of the change in control agreements, "Cause" means that the Named Executive Officer’s employment is terminated due to any one of the following events: (i) the willful and continued failure to substantially perform his duties with the Company after notice from the Company, or (ii) the willful engaging in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise.
For purposes of the change in control agreements, "Good Reason" means the occurrence (without the executive’s express written consent) after any change in control, or during a potential change in control period, of any one of the following acts or failures to act by the Company: (i) the assignment to the executive of any duties that are inconsistent with the executive’s status as an officer of the Company or a substantial diminution in the nature or status of the executive’s responsibilities from those in effect immediately prior to the change in control (or the commencement of the potential change in control period); (ii) a reduction in the executive’s then-current annual base salary; (iii) the relocation of the executive’s principal place of employment by more than 50 miles; (iv) the failure to pay to the executive any portion of his current or deferred compensation, within 30 days of the date such compensation is due; (v) the failure to continue in effect any compensation plan in which the executive participates immediately prior to the change in control (or the commencement of the potential change in control period) which is material to his total compensation without an equitable substitute; (vi) the failure to provide life insurance, health and accident, or disability benefits that are substantially similar to those in which the executive was participating immediately prior to the change in control (or the commencement of the potential change in control period); (vii) the failure to provide the executive with the number of paid vacation days to which he was entitled immediately prior to the change in control (or the commencement of the potential change in control period); (viii) any purported termination of the executive’s employment which is not effectuated in accordance with the employment termination procedures for cause set forth in the change in control agreement, or (ix) the failure of any successor to the Company to expressly assume and agree to perform the agreement in accordance with its terms prior to the effectiveness of any such succession. In no event will the executive have Good Reason to terminate employment under the change in control agreement due solely to a suspension of the executive’s position, job functions, authorities, duties and responsibilities while on paid administrative leave.
Starr Termination of Employment
On July 8, 2021 (the "Notification Date"), Mr. Robert D. Starr, former Executive Vice President and Chief Financial Officer of the Company, was notified that his employment was being terminated without cause effective as of July 31, 2021, and that he would immediately cease being the Chief Financial Officer of the Company. At the time of the notification, the Company and Mr. Starr were parties to an employment agreement, dated as of November 18, 2014 (the "Starr Employment Agreement"), that entitled Mr. Starr to certain specified compensation and benefits upon a termination of employment without cause. The Starr Employment Agreement was amended by Amendment No. 1 thereto, effective as of the Notification Date, to modify certain aspects of the post-termination benefits payable to Mr. Starr upon the termination of his employment, the material aspects of which are described more fully below.
As amended by Amendment No. 1 thereto, the Starr Employment Agreement entitled Mr. Starr to receive the following compensation and benefits upon the termination of his employment without cause:
•payment of all Accrued Amounts;
•a pro-rata portion of his annual bonus for 2021, based upon actual financial performance and payable at the time that annual bonuses are paid to other senior executives of the Company;
•a lump-sum payment equal to two times the sum of his then-current base salary and target bonus opportunity;
•a pro-rata payment in cash for each outstanding cash-based LTIP award for which the performance period has not been completed, based upon actual financial performance and payable as and when paid to other participants;
•continued participation in all medical, dental and vision plans for up to 24 months, subject to offset due to future employment; and
•full vesting of all outstanding equity awards.
For purposes of the Post-Termination Benefits Table that follows, the post-termination benefits shown for Mr. Starr relate solely to the compensation and other benefits payable in connection with his termination without cause effective as of July 31, 2021.
Equity Incentive Plans
The Company maintains equity incentive plans providing for the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted shares, restricted stock units, performance share awards, other stock-based awards and cash-based awards to employees, non-employee Directors, and consultants in order to promote the long-term success of the Company. These were generallyawards currently are made under the 2003 Stock Incentive Plan (the "2003 Plan") prior to April 18, 2013,terms and thereafter underprovisions of the Kaman Corporation Amended and Restated 2013 Management Incentive Plan (the "2013 Plan""MIP").
The 2013 PlanMIP provides that, in the event of a "change in control" of the Company (as defined in the 2013 Plan)MIP), unless otherwise set forth in an award agreement, the Committee may, but shall not be obligated to, do any one or more of the following, in each case without participant consent: (a) accelerate, vest or cause the restrictions to lapse with respect to, all or any portion of an award, (b) cancel awards for a cash payment equal to their fair value (as determined in the sole discretion of the Committee) which, in the case of options, shall be deemed to be equal to the excess, if any, of the consideration to be paid in connection with the change in control to holders of the same number of shares subject to such options (or, if no consideration is paid in any such transaction, the fair market value of the shares subject to such options) over the aggregate exercise price, (c) provide for the issuance of replacement awards that will substantially preserve the otherwise applicable terms of any affected awards previously granted under the 2013 PlanMIP as determined by the Committee in its sole discretion, (d) terminate options without providing accelerated vesting, or (e) take any other action with respect to the awards the Committee deems appropriate.
The 2003 Plan provides that, unless otherwise set forth in an award agreement, upon the occurrence of a "change in control" (as defined in the 2003 Plan), all long-term performance awards shall be deemed fully vested and fully earned to the extent of 100% of the target value of each such award and shall be paid out in accordance with the terms and provisions of the Plan. The 2003 Plan also provides that, if a participant’s employment is terminated during the 36-month period following a change in control (other than by the Company for cause, by reason of death or disability or by the participant without good reason), then, and only then (i) the vesting periods of any and all incentive stock options, non-statutory stock options and stock appreciation rights granted and outstanding under the Plan shall immediately be accelerated; and (ii) the restrictions and/or conditions applicable to any and all restricted stock awards granted and outstanding under the Plan shall immediately lapse and be of no further force and effect.
Annual Cash Incentive Plans
The 2018 annual cash incentive award opportunities for all Named Executive Officers were made under the 2013 Plan, the change in control provisions of which are discussed above.
Annual cash incentive award opportunities for other officers and senior executives are made under the Cash Bonus Plan, which generally requires a participant to be employed for the full award year in order to be eligible to receive an award under the Plan. However, the Cash Bonus Plan expressly authorizes the Committee, in its sole and absolute discretion, to authorize the payment of a cash bonus award to any individual who has been employed for less than a full award year or to any individual who shall cease to be in the employ of the Company for any reason prior to the end of a particular award year, to the extent that the Committee determines the payment of such an award to be fair and equitable.
Coordination of Benefits
Executives shallare not be entitled to receive duplicative severance benefits under the plans and agreements described above. If an executive’s employment with the Company is terminated under circumstances that would result in the payment of severance benefits under the executive’s change in control agreement, the severance benefits payable under the change in control agreement will be paid in lieu of any severance benefits that otherwise would be payable under the executive’s employment agreement. Moreover, the severance benefits specified in the employment and change in control agreements shall be paid in lieu of any similar benefits provided under the 2003 Plan, the 2013 Plan and the Cash Bonus Plan. Finally, anagreement, if any. An executive is entitled to severance benefits under his employment agreement or change in control agreement only after signing a general release, the form and content of which is specified in the change of control agreements.
Assumptions Relating to Post-Termination Benefit Table
The Post-Termination Benefit Table set forth below summarizes, in tabular format, the estimated compensation that each of our current Named Executive Officers would have received if a qualifying termination of employment were to have occurred on December 31, 2018,2021, under the circumstances indicated.
The following assumptions, which are believed to be reasonable in the aggregate, were used to generate the estimates set forth below. There can be no assurance, however, that an actual termination of employment would produce the same or similar results.
All Named Executive Officers•Mr. Starr's benefits are deemedthose to have terminated theirwhich he became entitled in connection with the actual termination of his employment with the Company effective as of DecemberJuly 31, 2018, under the circumstances indicated.2021. See "Starr Termination of Employment."
•All Accrued Amounts are omitted from the table because they were earned by the Named Executive Officers without regard to the specified triggering events. Accrued Amounts include, among others, (i) amounts earned in respect of annual cash incentive and LTIP awards for the period ended December 31, 2018,2021, (ii) the value of all stock options and restricted stock awards that were fully vested as of December 31, 2018,2021, and (iii) amounts payable in respect of pension and other retirement benefits, including the SERP and the Deferred Compensation Plan, which were vested as of December 31, 2018. 2021. See "Coordination with Other Tables," below.
•Any amounts payable with respect to contracts, agreements, plans or arrangements that do not discriminate in scope, terms or operation in favor of executive officers and are generally available to all salaried employees are omitted from the table in accordance with applicable SEC rules and regulations.
•All amounts calculatedunvested performance share units ("PSUs") held by NEOs with referencechange in control agreements are assumed to the valuehave vested in full at target as of our Common Stock were calculated using the closing price of our stock on the NYSE on December 31, 2018 (the last trading day2021, in connection with an assumed change in control and all unvested PSUs held by all other NEOs are assumed to have remained unchanged. A pro rata portion of the year), which was $56.09.such unvested PSUs are assumed to have vested at target in connection with death or
disability. In all other circumstances, all unvested PSUs are assumed to have been forfeited immediately upon an NEO's termination of employment in connection with a specified termination event.
•All unvested stock options and restricted stockshare awards ("RSAs") held by NEOs with change in control agreements are assumed to have vested in full as of December 31, 2018,2021, in connection with respect to aan assumed change in control and all unvested restricted share awards held by all other NEOs are assumed to have remained unchanged. All such unvested RSAs are assumed to have vested in full in connection with death or disability. In all other circumstances, all unvested RSAs are assumed to have been forfeited immediately upon an NEO's termination of employment without Cause by us or by the Named Executive Officer for Good Reason or due to retirement, death or disability. in connection with a specified termination event.
•All unvested restricted stock optionsawards and performance share units that are assumed to have vested due to a change in control are valued based upon the difference between the closing price of our Common Stock on December 31, 2018 (the last trading day of the year), and the exercise price of the underlying stock option. All unvested restricted stock awards that areconnection with an assumed to have vested due to a change in controltermination event are valued based upon the closing price of our Common Stock on the NYSE on December 31, 2018.2021, which was $43.15.
•Additional notes and other explanatory information is set forth in the notes to the table.
Coordination with Other Tables
The Post-Termination Benefit Table does not duplicate certain amounts disclosed elsewhere in this proxy statement or with respect to which the Named Executive Officers were vested on or before December 31, 2018,2021, without regard to the triggering events specified in the table. These amounts include, among others, the following:
•Stock options and restricted stock awards that vested on or before December 31, 2018;2021;
•Pension and SERP benefits, which are summarized in the Pension Benefits table;
•Vested amounts payable under the Deferred Compensation Plan, which are summarized in the Non-Qualified Deferred Compensation Plan table; and
•Unreimbursed business expenses.
[Rest of Page Intentionally Left Blank]
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| POST-TERMINATION BENEFITS TABLE |
| Executive | | Benefit | | Termination Event |
| | Termination
for Cause
or without
Good Reason | | Termination without Cause or with Good Reason(1) | | Termination without Cause or with Good Reason in Connection with a Change in Control (2) | | Retirement | | Disability | | Death |
| | | | | | | | | | | | | | |
| Ian K. Walsh | | Cash Severance(3) | | — | | | $1,700,000 | | $4,350,000 | | — | | | — | | | — | |
| President and Chief Executive Officer | | Performance Shares(4) | | — | | | — | | | — | | | — | | | $374,902 | | $374,902 |
| Restricted Stock(5) | | — | | | $2,052,343 | | $2,052,343 | | — | | | $2,052,343 | | $2,052,343 |
| LTIP Awards(6) | | — | | | — | | | — | | | — | | | — | | | — | |
| | Health & Welfare(7) | | — | | | $59,314 | | $59,314 | | — | | | $120,000 | | — | |
| | Life Insurance(8) | | — | | | — | | | $8,780 | | — | | | — | | | $1,200,000 |
| | Outplacement Services | | — | | | — | | | $30,000 | | — | | | — | | | — | |
| | Total | | — | | | $3,811,657 | | $6,500,437 | | — | | | $2,547,245 | | $3,627,245 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| James G. Coogan | | Cash Severance(3) | | — | | | — | | | $1,216,000 | | — | | | — | | | — | |
| Senior Vice President and Chief Financial Officer | | Performance Shares(4) | | — | | | — | | | — | | | — | | | $29,054 | | $29,054 |
| Restricted Stock(5) | | — | | | — | | | $86,818 | | — | | | $86,818 | | $86,818 |
| LTIP Awards(6) | | — | | | — | | | — | | | — | | | — | | | — | |
| | Health & Welfare(7) | | — | | | — | | | $59,314 | | — | | | $120,000 | | — | |
| | Life Insurance(8) | | — | | | — | | | $2,134 | | — | | | — | | | $1,000,000 |
| | Outplacement Services | | — | | | — | | | $30,000 | | — | | | — | | | — | |
| | Total | | — | | | — | | | $1,394,266 | | — | | | $235,872 | | $1,115,872 |
| | | | | | | | | | | | | | |
Robert D. Starr (9) | | Cash Severance(3) | | — | | | $1,804,971 | | — | | | — | | | — | | | — | |
| Former Executive Vice President and Chief Financial Officer | | Performance Shares(4) | | — | | | — | | | — | | | — | | | — | | | — | |
| Restricted Stock(5) | | — | | | $151,819 | | — | | | — | | | — | | | — | |
| LTIP Awards(6) | | — | | | $1,003,261 | | — | | | — | | | — | | | — | |
| | Health & Welfare(7) | | — | | | $1,996 | | — | | | — | | | — | | | — | |
| | Life Insurance(8) | | — | | | $7,813 | | — | | | — | | | — | | | — | |
| | Outplacement Services | | — | | | — | | | — | | | — | | | — | | | — | |
| | Total | | — | | | $2,969,860 | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | |
| Russell J. Bartlett | | Cash Severance(3) | | — | | | — | | | — | | | — | | | — | | | — | |
| Senior Vice President and Chief Operating Officer | | Performance Shares(4) | | — | | | — | | | — | | | — | | | $114,419 | | $114,419 |
| Restricted Stock(5) | | — | | | — | | | — | | | — | | | $114,348 | | $114,348 |
| LTIP Awards(6) | | — | | | — | | | — | | | — | | | — | | | — | |
| | Health & Welfare(7) | | — | | | — | | | — | | | — | | | $120,000 | | — | |
| | Life Insurance(8) | | — | | | — | | | — | | | — | | | — | | | $1,000,000 |
| | Outplacement Services | | — | | | — | | | — | | | — | | | — | | | — | |
| | Total | | — | | | — | | | — | | | — | | | $348,767 | | $1,228,767 |
| | | | | | | | | | | | | | |
| Shawn G. Lisle | | Cash Severance (3) | | — | | | — | | | $1,399,185 | | — | | | — | | | — | |
| Senior Vice President and General Counsel | | Performance Shares(4) | | — | | | — | | | — | | | — | | | $84,358 | | $84,358 |
| Restricted Stock(5) | | — | | | — | | | $84,358 | | — | | | $84,358 | | $84,358 |
| LTIP Awards(6) | | — | | | — | | | $292,563 | | $292,563 | | $292,563 | | $292,563 |
| | Health & Welfare(7) | | — | | | — | | | $40,406 | | — | | | $120,000 | | — | |
| | Life Insurance(8) | | — | | | — | | | $6,511 | | — | | | — | | | $1,000,000 |
| | Outplacement Services | | — | | | — | | | $30,000 | | — | | | — | | | — | |
| | Total | | — | | | — | | | $1,853,023 | | $292,563 | | $581,279 | | $1,461,279 |
|
| | | | | | | | | | | | | | | | | | | | |
| POST-TERMINATION BENEFITS TABLE |
Named Executive Officer | | Benefit | | Termination Event |
| | | | | Termination for Cause or without Good Reason | | Termination without Cause or with Good Reason(1) | | Termination without Cause or with Good Reason in Connection with a Change in Control (2) | | Retirement | | Disability | | Death |
| Neal J. Keating | | Cash Severance(3) | | — |
| | $4,415,000 | | $6,150,000 | | — |
| | — |
| | — |
|
| Chairman, President and Chief Executive Officer | | Stock Options(4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | Restricted Stock(5) | | — |
| | $841,350 | | $841,350 | | $841,350 | | $841,350 | | $841,350 |
| | LTIP Awards(6) | | — |
| | $2,967,088 | | $2,967,088 | | $2,967,088 | | $2,967,088 | | $2,967,088 |
| | | Health & Welfare(7) | | — |
| | $40,998 | | $40,998 | | — |
| | — |
| | — |
|
| | | Life Insurance(8) | | — |
| | $495,687 | | $495,687 | | $495,687 | | $495,687 | | — |
|
| | | Outplacement Services | | — |
| | — |
| | $30,000 | | — |
| | — |
| | — |
|
| | | Total | | — |
| | $8,760,123 | | $10,525,123 | | $4,304,125 | | $4,304,125 | | $3,808,438 |
| | | | | | | | | | | | | | | |
| Robert D. Starr | | Cash Severance(3) | | — |
| | $1,672,146 | | $1,597,200 | | — |
| | — |
| | — |
|
| Executive Vice President and Chief Financial Officer | | Stock Options(4) | | — |
| | $52,196 | | $52,196 | | $52,196 | | $52,196 | | $52,196 |
| | Restricted Stock(5) | | — |
| | $52,052 | | $52,052 | | $52,052 | | $52,052 | | $52,052 |
| | LTIP Awards(6) | | — |
| | $688,485 | | $688,485 | | $688,485 | | $688,485 | | $688,485 |
| | | Health & Welfare(7) | | — |
| | $40,998 | | $40,998 | | — |
| | — |
| | — |
|
| | | Life Insurance(8) | | — |
| | $4,909 | | $298,962 | | — |
| | — |
| | — |
|
| | | Outplacement Services | | — |
| | — |
| | $30,000 | | — |
| | — |
| | — |
|
| | | Total | | — |
| | $2,510,786 | | $2,759,893 | | $792,733 | | $792,733 | | $792,733 |
| | | | | | | | | | | | | | | |
| Richard R. Barnhart | | Cash Severance(3) | | — |
| | — |
| | $1,525,838 | | — |
| | — |
| | — |
|
| Executive Vice President and President, Kaman Aerospace Group | | Stock Options(4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | Restricted Stock(5) | | — |
| | — |
| | $89,744 | | $89,744 | | $89,744 | | $89,744 |
| | LTIP Awards(6) | | — |
| | — |
| | $562,295 | | $562,295 | | $562,295 | | $562,295 |
| | | Health & Welfare(7) | | — |
| | — |
| | $34,200 | | — |
| | — |
| | — |
|
| | | Life Insurance(8) | | — |
| | — |
| | $362,993 | | — |
| | — |
| | — |
|
| | | Outplacement Services | | — |
| | — |
| | $30,000 | | — |
| | — |
| | — |
|
| | | Total | | — |
| | — |
| | $2,605,070 | | $652,039 | | $652,039 | | $652,039 |
| | | | | | | | | | | | | | | |
| Alphonse J. Lariviere, Jr. | | Cash Severance(3) | | — |
| | — |
| | $1,390,208 | | — |
| | — |
| | — |
|
| Executive Vice President and President, Kaman Industrial Technologies | | Stock Options(4) | | — |
| | — |
| | $165,789 | | $165,789 | | $165,789 | | $165,789 |
| | Restricted Stock(5) | | — |
| | — |
| | $290,996 | | $290,996 | | $290,996 | | $290,996 |
| | LTIP Awards(6) | | — |
| | — |
| | $512,313 | | $512,313 | | $512,313 | | $512,313 |
| | | Health & Welfare(7) | | — |
| | — |
| | $28,032 | | — |
| | — |
| | — |
|
| | | Life Insurance(8) | | — |
| | — |
| | $372,607 | | — |
| | — |
| | — |
|
| | | Outplacement Services | | — |
| | — |
| | $30,000 | | — |
| | — |
| | — |
|
| | | Total | | — |
| | — |
| | $2,789,945 | | $969,098 | | $969,098 | | $969,098 |
| | | | | | | | | | | | | | | |
| Shawn G. Lisle | | Cash Severance(3) | | — |
| | — |
| | $1,242,248 | | — |
| | — |
| | — |
|
| Senior Vice President and General Counsel | | Stock Options(4) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | Restricted Stock(5) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | LTIP Awards(6) | | — |
| | — |
| | $388,725 | | $388,725 | | $388,725 | | $388,725 |
| | | Health & Welfare(7) | | — |
| | — |
| | $40,998 | | — |
| | — |
| | — |
|
| | | Life Insurance(8) | | — |
| | — |
| | $239,170 | | — |
| | — |
| | — |
|
| | | Outplacement Services | | — |
| | — |
| | $30,000 | | — |
| | — |
| | — |
|
| | | Total | | — |
| | — |
| | $1,941,141 | | $388,725 | | $388,725 | | $388,725 |
| | | | | | | | | | | | | | | |
| |
(1) | Reflects amounts due to each executive under his employment agreement, assuming the executive's employment is terminated by the Company without "Cause" or by the executive for "Good Reason," as such terms are defined in the employment agreements. Only Messrs. Keating and Starr have employment agreements. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| POST-TERMINATION BENEFITS TABLE |
| Executive | | Benefit | | Termination Event |
| | Termination
for Cause
or without
Good Reason | | Termination without Cause or with Good Reason(1) | | Termination without Cause or with Good Reason in Connection with a Change in Control (2) | | Retirement | | Disability | | Death |
| | | | | | | | | | | | | | |
| Kristen M. Samson | | Cash Severance (3) | | — | | | — | | | — | | | — | | | — | | | — | |
| Vice President - Chief Marketing Officer | | Performance Shares(4) | | — | | | — | | | — | | | — | | | $29,630 | | $29,630 |
| Restricted Stock(5) | | — | | | — | | | — | | | — | | | $105,070 | | $105,070 |
| LTIP Awards(6) | | — | | | — | | | — | | | — | | | — | | | — | |
| | Health & Welfare(7) | | — | | | — | | | — | | | — | | | $120,000 | | — | |
| | Life Insurance(8) | | — | | | — | | | — | | | — | | | — | | | $700,000 |
| | Outplacement Services | | — | | | — | | | — | | | — | | | — | | | — | |
| | Total | | — | | | — | | | — | | | — | | | $254,700 | | $834,700 |
| | | | | | | | | | | | | | |
| |
(2) | Reflects amounts due to each executive under his change in control agreement, assuming the executive's employment is terminated during the "change in control" protection period other than (i) by the Company for "Cause," (ii) by reason of death or disability, or (iii) by the executive without "Good Reason," as such terms are defined in the change in control agreements. All Named Executive Officers have change in control agreements. |
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(3) | Reflects two times (or, for Mr. Keating, three times in the event of a change in control) 2018 base salary and the executive's target bonus opportunity for a termination in connection with a change in control (or the executive's prior year bonus for a termination not in connection with a change in control). There are no severance payments due upon retirement, death or disability. However, the Company will pay a pro-rata amount of any annual cash incentive award in the event of retirement, death or disability, to be paid when such awards are normally paid to other executives. |
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(4) | Reflects the value of unvested stock options that become fully vested upon a qualifying termination, calculated as the difference between the exercise price and $56.09, the closing price of the Company’s Common Stock on the NYSE on December 31, 2018 (the last trading day of the year). Amounts shown for Messrs. Barnhart, Lariviere and Lisle vest immediately only upon a change in control. |
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(5) | Reflects the value of unvested restricted stock awards that become fully vested upon a qualifying termination, calculated as $56.09 per share, the closing price of the Company’s Common Stock on the NYSE on December 31, 2018 (the last trading day of the year). Amounts shown for Messrs. Barnhart, Lariviere and Lisle vest immediately only upon a change in control. |
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(6) | Reflects a pro-rata payment in respect of outstanding LTIP awards with performance periods ending after December 31, 2018. The actual amount of the payment generally will be determined by multiplying the amount the participant would have received based upon target performance for the entire performance period by a fraction, the numerator of which is the number of days the participant remained employed with the corporation during such performance period and the denominator of which is the total number of days during the performance period. |
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(7) | Reflects the value of the Company’s share of premium payments to be made for medical and dental for 24 months, based on 2019 premiums for active employees with one dependent. |
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(8) | Reflects the value of regular annual premiums based on the 2018 rate, which will be paid for 24 months, except in the case of Mr. Keating who is entitled to have his premiums paid for his lifetime. The premium payment obligation accelerates upon a change in control for all NEOs; the estimated pre-payment for life insurance premium payments as of December 31, 2018, is illustrated in this chart assuming the RP-2014 generational blue collar lump sum mortality adjusted to 2006 with projection scale RP-2018 (as required by the Pension Protection Act of 2006), and interest at 3.88%. |
(1)Reflects amounts due to each executive under any employment agreement, assuming the executive's employment is terminated by the Company without "Cause" or by the executive for "Good Reason," as such terms are defined in any applicable agreement. Mr. Starr's employment with the Company was terminated by the Company without "Cause" effective as of July 31, 2021, and the amounts shown in the table reflect the actual amounts paid to him in connection with such termination of employment. Only Mr. Walsh had an employment agreement on December 31, 2021. 2018 (2)Reflects amounts due to each executive under his change in control agreement, assuming the executive's employment is terminated during the "change in control" protection period other than (i) by the Company for "Cause," (ii) by reason of death or disability, or (iii) by the executive without "Good Reason," as such terms are defined in the change in control agreements. Only Messrs. Walsh, Coogan and Lisle had change in control agreements on December 31, 2021.
(3)Reflects two times (or, for Mr. Walsh, three times in the event of a change in control) 2021 base salary and the executive's target bonus opportunity for a termination in connection with a change in control (or the executive's prior year bonus for a termination not in connection with a change in control). The amount shown for Mr. Starr represents two times his 2021 base salary and target bonus opportunity.
(4)Reflects the value of unvested PSUs that become fully vested upon a qualifying termination.
(5)Reflects the value of unvested RSAs and RSUs that become fully vested upon a qualifying termination.
(6)Reflects a pro-rata payment (at 100% of target) in respect of outstanding cash-based LTIP awards with performance periods ending after December 31, 2021. Amounts actually paid to each executive will be determined after the completion each relevant performance period based on the actual financial performance of the Company.
(7)Reflects, as applicable, the value of the Company’s share of premium payments to be made for medical and dental for 24 months, based on 2021 premiums for active employees with one dependent, and the annual long-term disability benefit to which each executive would be entitled, which is generally equal to 60% of base salary with an annual cap of $120,000. The Company's long-term disability program is fully insured, so any disability payments would be the responsibility of the insurer.
(8)Reflects the death benefit payable under the Company's senior executive life insurance program, which is fully insured. Any death benefits would be the responsibility of the insurer.
(9)Mr. Starr's employment with the Company was terminated without cause, effective as of July 31, 2021. Amounts shown in the table reflect solely the compensation and other benefits payable to Mr. Starr in connection with such termination of employment under his employment agreement with the Company. See "Starr Termination of Employment."
PAY RATIO DISCLOSURE
As required by the Dodd-Frank Act and Regulation S-K of the Exchange Act, we are providing the following information about the relationship of the annual total compensation of our President and Chief Executive Officer Neal J. Keating,(our "CEO") and the median of the annual total compensation of our employees for 20182021 (our "2018"2021 CEO Pay Ratio”). Our 20182021 CEO Pay Ratio is a reasonable good faith estimate of the annualrelationship between the total compensation ofpaid to our PresidentCEO and Chief Executive Officer to the median of the annual total compensation of our employees for 2018,2021, calculated in a manner consistent with Item 402(u) of Regulation S-K. Because applicable SEC rules for identifying the median employee and calculating the pay ratio allow companies to use different methodologies, apply certain exclusions and make reasonable estimates and assumptions that reflect their compensation practices, our 2021 CEO Pay Ratio may not be comparable to the pay ratios reported by other companies, as they may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
Our 20182021 CEO Pay Ratio was 33 to 77:1, based on the following:calculated as follows:
•the annual total compensation of Mr. Keating for 2018, as set forth in the Summary Compensation Table,Walsh, our CEO throughout 2021, was $2,190,285;$4,912,675; and
•the median of the annual total compensation of all of our employees (other than Mr. Keating)Walsh), determined in accordance with Item 402(u) of Regulation S-K, was $65,436.
As noted above, Mr. Keating’s payout, if any, with respect to his outstanding LTIP Award for the 2016-2018 performance period (the "2016-2018 LTIP Award") was not definitively determinable as of the date of this proxy statement and was not included in the Summary Compensation Table, although we separately disclosed the amount currently accrued based on the preliminary data available as of January 30, 2019. See"Compensation Discussion and Analysis - 2018 Compensation for our NEOs - Long-Term Incentive Awards - Estimated 2018 LTIP Payouts." If this amount were included in the computation of Mr. Keating's total compensation for 2018, it would increase his annual total compensation to $5,646,285 and increase our 2018 CEO Pay Ratio to 86 to 1. THE COMPANY WILL PREPARE AND FILE A CURRENT REPORT ON FORM 8-K DISCLOSING THE ACTUAL PAYOUT IN RESPECT OF THE 2016-2018 LTIP AWARD AND AN UPDATED CEO PAY RATIO REFLECTING THE AMOUNT OF THE PAYOUT PROMPTLY AFTER IT IS DETERMINED AND APPROVED BY THE P&C COMMITTEE IN JUNE 2019.$63,543.
Methodology for Determining Our "Median Employee"
For purposes of the foregoing CEO pay ratio disclosure, we were required to identify the "median employee” of our worldwide workforce, without regard to their location, compensation arrangements or employment status (full-time versus part-time) and then determine the annual total compensation that "median employee” earned during 2018. We first determined our "median employee” during 2017 for purposes of determining our CEO pay ratio for that year (our "2017 CEO Pay Ratio") by identifying the employee whose compensation was at the median of the compensation of our employee population (other than our CEO) for 2017.2021. The applicable SEC rules require us to identify a "median employee" only once every three years, as long as there have been no material changes in our employee population or employee compensation arrangements that we reasonably believe would result in a significant change to our CEO pay ratio disclosure. Because there have been no material changes inWe last identified our median employee population or employee compensation arrangements that we believe would significantly impact the Company’s CEO pay ratio disclosure, we are using the same "median employee” for our 2018 CEO Pay Ratio that we used for our 2017 CEO Pay Ratio, although we have updated the calculation of the total compensation earned by that employee for 2018.
The methodology and the material assumptions and estimates that we used to identify our "median employee” during 2017 were as follows:
Employee Population
Total Global Population. We determined that, as of October 1, 2017, the date we selected to identify the "median employee,” our employee population consisted of approximately 5,300 individuals working for Kaman Corporation and our consolidated subsidiaries, with approximately 80% of these individuals located in the United States and approximately 20% located outside the United States.2021.
De Minimis Exemption. Consistent with our global operations, we maintain multiple human resources systems, with relevant payroll and other compensation data for our U.S. employees maintained in the United States and relevant payroll and other compensation data for our non-U.S. employees maintained in multiple other systems around the world. As permitted by SEC rules, we have chosen to exclude employees who are employed in certain jurisdictions from the determination of our "median employee,” given the relatively small number of employees in those jurisdictions and the estimated additional time, effort and expense that would be required to obtain and analyze their compensation information. In total, we excluded 186 employees in our Czech Republic location, which represents less than 5% of our global workforce.
Compensation Measures Used to Identify the Median Employee
Given the geographical distribution of our employee population, weWe use a variety of pay elements to structure the compensation arrangements of our employees. For purposes of measuring the compensation of our employeesused to identify the "median employee,” we utilized base salary / wages and overtime pay, plus actual annual cash incentive compensation (annual bonus) and allowances paid through October 1, 20172021 as the relevant compensation measures. We also annualized the compensation of employees to cover the full calendar year and treated new hires as if they were hired at the beginning of the year, as permitted by applicable SEC rules and regulations. We did not make any cost-of-living adjustments.
Annual Total Compensation of the Median Employee
Using the median employee identified during 2017,2021, we then identified and calculated the elements of that employee’s total annual compensation for 20182021 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. This resulted in total annual compensation in the amount of $65,436.$63,543. This is the amount used to determine our 20182021 CEO Pay Ratio discussed above.
Annual Total CompensationUnlike the median employees utilized for prior year disclosures, the median employee identified during 2021 does not participate in the Company's qualified defined benefit pension plan, which was closed to new hires from and after March 1, 2010 and under which further benefit accruals ceased as of Chief Executive Officer
In accordance withDecember 31, 2015. Although future benefit accruals under the applicable rulesplan have ceased and regulationspension benefits will not change going forward, the actuarial present value of projected pension benefits for active participants will continue to fluctuate based on changes in the SEC,underlying discount and mortality rates used to determine the values. Since the median employee identified during 2021 does not participate in the pension plan, however, the total annual compensation of Mr. Keating, was taken from the "Total” columnsuch employee for 2018 from the Summary Compensation Table included in this proxy statement. As noted above, however, this amount2021 does not reflect amounts that cannot yet be determined but which may become due underinclude any amount attributable to the year-over-year change in the actuarial present value of such employee's projected pension benefit. Mr. Keating's outstanding 2016-2018 LTIP Award. The Company will prepare and file a Current Report on Form 8-K disclosingWalsh does not participate in the actual payout in respect of this award and an updated CEO pay ratio reflecting the amount of the payout promptly after it is determined and approved by the Committee in June 2019.pension plan either, so his total compensation for 2021 also does not include any such amount.
PROPOSAL 2
ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
Background
As required by Section 14A of the Exchange Act and the applicable rules and regulations of the SEC promulgated thereunder and in accordance with the results of our 2017 shareholder advisory vote relating to the frequency of advisory votes on the compensation of our named executive officers,Named Executive Officers, we are asking shareholders to vote on an advisory (non-binding) basis on the following resolution at the annual meeting:
RESOLVED: That the compensation paid to the Company's named executive officers,Named Executive Officers, as described in the Compensation Discussion and Analysis, the Summary Compensation Table and the other executive compensation tables and related narratives and descriptions included in the Proxy Statement relating to the Company's 20192022 Annual Meeting of Shareholders be, and hereby is, APPROVED.
This advisory vote, commonly known as a "say-on-pay" vote, gives shareholders the opportunity to express their views about the compensation we pay to our Named Executive Officers, as described in this Proxy Statement. Shareholders may vote "FOR" or "AGAINST" the resolution or abstain from voting. Before voting, all shareholders are urged to review the Compensation Discussion and Analysis, as well as the tabular and narrative disclosures that follow it. These sections describe the Company's compensation programs relating to our Named Executive Officers and the rationale behind the decisions made by the P&CCompensation Committee.
The Board believes that the Company's executive compensation program effectively reflects the objectives described in the Compensation Discussion and Analysis and, therefore, recommends that shareholders vote "FOR" the resolution set forth above.
Because this vote is advisory (non-binding), neither the Company nor the Board is required to take action in response to the outcome of the vote on this Proposal. Shareholders can be assured, however, that the shareholder sentiment expressed by the vote will be considered by the P&CCompensation Committee and the Board in crafting their approach to executive compensation matters.
Board Recommendation
The Board of Directors unanimously recommends that shareholders vote "FOR" approval of the compensation paid to our Named Executive Officers.
Required Vote
In order to be approved by shareholders, the advisory vote on executive compensation requires that there be more votes cast "FOR" the proposal than "AGAINST" the proposal. Broker non-votes and abstentions are not considered for purposes of determining the tally of votes cast "FOR" or "AGAINST" the proposal and, therefore, will not affect the outcome of the voting.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS
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PROPOSAL 3
ELIMINATION OF SUPERMAJORITY VOTING PROVISIONS
Background
Currently, the Company’s Amended and Restated Certificate of Incorporation (the “Restated Certificate”) provides that certain amendments to the Restated Certificate or the Company’s Amended and Restated Bylaws (the “Bylaws”) require the affirmative vote of the holders of 66 2/3% of all capital stock of the Company which by its terms may be voted on all matters submitted to shareholders of the Company generally, voting together as a single class at a duly called meeting of the shareholders of the Company. We refer to these provisions listed below as the “Supermajority Voting Requirement.”
Specifically, Article Eighth of the Restated Certificate provides that any shareholder-approved amendment, alteration, repeal, or rescission of any Bylaw provision of the Company must be approved pursuant to the Supermajority Voting Requirement.
Article Ninth of the Restated Certificate provides that any amendment, alteration, repeal, rescission or adoption of any provision inconsistent with any of the provisions of the Restated Certificate listed below must be approved pursuant to the Supermajority Voting Requirement. The provisions covered by the Supermajority Voting Requirement are in regards to:
issuance of authorized capital stock (Article Seventh, Paragraph A);
indemnification of directors and officers (Article Seventh, Paragraph B);
limitation of personal liability of a director (Article Seventh, Paragraph C);
Board size, classes of directors, director terms, Board vacancies, director removal, and preferred stock directors (Article Seventh, Paragraph D, Sections 1, 2, 3, 4, 5 and 6, respectively);
amendment, alteration, repeal or rescission of the Company’s Bylaws (Article Eighth); and
amendment, alteration, repeal, rescission or adoption of any provision inconsistent with Article Ninth (Article Ninth).
Sections 33-797(f), 33-817(9), 33-831(i) and 33-881(f) of the Connecticut Business Corporation Act (the “CBCA”) currently provide that the default voting requirement for certain corporate actions is the affirmative vote of at least two-thirds of the voting power of each voting group entitled to vote thereon. We refer to these provisions as the “Corporate Action Supermajority Voting Requirement.” The CBCA permits corporations to modify the default Corporate Action Supermajority Voting Requirement through an amendment to their certificates of incorporation.
The actions covered by the Corporate Action Supermajority Voting Requirement are in regards to:
an amendment to the certificate of incorporation (Section 33-797(f));
a plan of merger or share exchange (Section 33-817(9));
a sale or other disposition of assets other than in the ordinary course of business (Section 33-831(i)); and
a dissolution (Section 33-881(f)).
At the 2018 Annual Meeting of Shareholders, 59% of the votes cast voted in favor of a shareholder proposal to eliminate the supermajority voting provisions of the Company’s Restated Certificate, after which the Board carefully reviewed the various arguments regarding supermajority voting.
After careful review and consideration, our Board has determined that the amendments described below are in the best interests of the Company’s shareholders, and, in light of the strong support received at the 2018 Annual Meeting, our Board is now submitting a proposal to amend our Restated Certificate to eliminate the Supermajority Voting Requirement and modify the Corporate Action Supermajority Voting Requirement and is unanimously recommending that shareholders vote “FOR” approval of the proposal.
If the proposal is approved by shareholders, the amendment would become effective upon the filing of an appropriate certificate of amendment with the Secretary of State of the State of Connecticut promptly following the 2019 Annual Meeting of Shareholders.
The full text of the proposed amendment is set forth below. If the amendment is approved, future shareholder-approved amendments to the Bylaws and Restated Certificate provisions listed above will not be subject to the Supermajority Voting Requirement and will instead require the affirmative vote of the holders of a majority of all capital stock of the Company which by its terms may be voted on all matters submitted to shareholders of the Company generally, voting together as a single class at a duly called meeting of the shareholders of the Company. In addition, if approved, the corporate actions listed above will not be subject to the Corporate Action Supermajority Voting Requirement and will instead require the approval of a majority of the votes entitled to be cast on the matter.
Text of Proposed Amendment
The text of the proposed amendments to Articles Eighth and Ninth, in which proposed deletions are reflected in red “strike-through” text and proposed additions are reflected in blue “underline” text, is as follows:
EIGHTH:
In furtherance and not in limitation of the powers conferred by statute, a majority of the entire Board of Directors is expressly authorized to adopt, repeal, alter, amend or rescind the Bylaws of the corporation. As used in this Article EIGHTH, the term “entire Board of Directors” means the total number of directors which the corporation would have, as fixed by the Board of Directors under Paragraph D of Article SEVENTH of this Amended and Restated Certificate of Incorporation, if there were no vacancies. In addition, the Bylaws of the corporation may be amended, altered, repealed, or rescinded by the affirmative vote of the holders of sixty-six and two-thirds percent (66 2/3%)a majority of all capital stock of the corporation which by its terms may be voted on all matters submitted to shareholders of the corporation generally, voting together as a single class at a duly called meeting of the shareholders of the corporation.
NINTH:
Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%)a majority of all capital stock of the corporation which by its terms may be voted on all matters submitted to shareholders of the corporation generally, voting together as a single class at a duly called meeting of the shareholders of the corporation, shall be required to amend, alter, repeal, rescind or adopt any provision inconsistent with Articles SEVENTH and EIGHTH of this Amended and Restated Certificate of Incorporation and this Article NINTH. The corporation expressly elects not to be governed by the provisions of Sections 33-797(f), 33-817(9), 33-831(i) or 33-881(f) of the CBCA pertaining to the shareholder vote required for corporations incorporated under the laws of the State of Connecticut prior to January 1, 1997 with respect to approval of an amendment of a certificate of incorporation, a plan of merger or share exchange, a sale of assets other than in the ordinary course of business or dissolution.
Board Recommendation
The Board of Directors unanimously recommends that shareholders vote “FOR” approval of the proposed amendment to the Restated Certificate to eliminate supermajority voting.
Required Vote
In order to be approved by shareholders, the proposed amendment to the Restated Certificate requires the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of Common Stock. Because favorable votes are measured against our outstanding shares, abstentions and broker non-votes will have the same effect as a vote against the proposal. If the proposed amendments to the Restated Certificate are not approved by shareholders, the voting standard with respect to amendments to the Bylaws and Restated Certificate provisions will continue to be the affirmative vote of the holders of 66 2/3% of all capital stock of the Company which by its terms may be voted on all matters submitted to shareholders of the Company generally, voting together as a single class at a duly called meeting of the shareholders of the Company, and the voting standard with respect to corporate actions listed above will continue to be at least two-thirds of the voting power of each voting group entitled to vote thereon.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE AMENDMENT TO THE RESTATED CERTIFICATE ELIMINATING
THE SUPERMAJORITY VOTING PROVISIONS SET FORTH THEREIN
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PROPOSAL 4
IMPLEMENTATION OF MAJORITY VOTING FOR THE ELECTION OF DIRECTORS
Background
Under Connecticut law, unless otherwise provided in a corporation’s certificate of incorporation, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. Under this standard, the nominees receiving the greatest number of votes “FOR” their election are elected as directors. Currently, the members of the Board of Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.
Our Board regularly reviews our corporate governance practices to ensure that such practices remain in the best interests of the Company and its shareholders. Our Board is also committed to considering and responding to shareholder concerns regarding corporate governance. At the 2018 Annual Meeting of Shareholders, 39% of votes cast voted in favor of a shareholder proposal recommending that we initiate the appropriate process to provide for a majority voting standard in uncontested elections. After careful review and consideration, our Board has determined that it is in the best interests of the Company’s shareholders to amend our Amended and Restated Certificate of Incorporation (the “Restated Certificate”) to provide for a majority voting standard in uncontested director elections. Our Board is now submitting a proposal to amend our Restated Certificate to implement a majority voting standard in uncontested director elections and is unanimously recommending that shareholders vote “FOR” approval of the proposal.
A majority voting standard in uncontested director elections would require each director nominee to receive a majority of votes cast, meaning that the number of votes cast “FOR” must exceed those cast “AGAINST” the director nominee. Abstentions and broker non-votes are not considered votes cast “FOR” or “AGAINST” the nominee. In contested elections, in which there are more nominees than Board seats, directors will be elected by a plurality of the votes cast.
Clause D(3) of Article Seventh of the Restated Certificate currently provides that an incumbent director who does not receive the requisite vote continues to serve until the director’s successor is elected and qualifies, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Our Board adopted a resignation policy, currently set forth in Section 3 of the Company’s Corporate Governance Principles, requiring that any director of the Company who fails to receive the requisite majority vote in an uncontested election shall promptly tender his or her resignation, after which the Corporate Governance Committee shall recommend to the Board, and the Board shall decide, whether to accept or reject that resignation or whether other action should be taken. The Corporate Governance Committee and the full Board must then evaluate any such resignation in light
of the best interests of the Company and its shareholders, considering any information they consider relevant and appropriate, including the following:
the director’s qualifications in light of the overall composition of the Board;
the director’s past and anticipated future contributions to the Board;
the stated reasons, if any, for the “withheld” votes and whether the underlying cause can be otherwise addressed; and
the potential adverse consequences of accepting the resignation, including failure to comply with any applicable rule or regulation (including NYSE rules or federal securities laws) or triggering defaults or other adverse consequences under material contracts or the acceleration of change-in-control provisions and other rights in employment agreements, if applicable.
The policy also provides that any director who tenders his or her resignation will not participate in the Corporate Governance Committee’s determination process and the Board’s action regarding the consideration of such resignation.
If the proposal is approved by shareholders, the amendment would become effective upon the filing of an appropriate certificate of amendment with the Secretary of State of the State of Connecticut promptly following the 2019 Annual Meeting of Shareholders. The full text of the proposed amendment is set forth below.
Text of Proposed Amendment
Clause D(4) of Article Seventh of the Restated Certificate is proposed to be renumbered as Clause D(5) of Article Seventh of the Restated Certificate, and a new Clause D(4) of Article Seventh will be added to the Restated Certificate with the following language:
(4) Election. At any meeting of shareholders at which directors may be elected each director nominee shall be elected by an affirmative vote of a majority of the votes cast with respect to such director nominee by the shareholders entitled to vote in the election at a meeting at which a quorum is present, unless the number of nominees exceeds the number of directors to be elected, in which case each director nominee shall be elected by a plurality of the votes of the shares properly represented and entitled to vote in the election at such meeting. “Votes cast” include votes “for” and “against”, but exclude abstentions and broker non-votes with respect to that director nominee’s election. In the event that a nominee is already a director of the corporation and does not receive a majority of the votes cast with respect to such nominee in an election where the number of nominees equals the number of directors to be elected, such nominee shall promptly tender his or her resignation to the Board of Directors for consideration. No shareholder shall have the right to cumulate votes in the election of directors.
Clause D(5) and Clause D(6) of Article Seventh of the Restated Certificate will be renumbered as Clause D(6) and Clause D(7) of Article Seventh of the Restated Certificate, respectively.
Board Recommendation
The Board of Directors unanimously recommends that shareholders vote “FOR” approval of the proposed amendment to the Restated Certificate to implement a majority voting standard in uncontested director elections.
Required Vote
In order to be approved by shareholders, the proposed amendment to the Restated Certificate requires the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of Common Stock. Because favorable votes are measured against our outstanding shares, abstentions and broker non-votes will have the same effect as a vote against the proposal. If the proposed amendments to the Restated Certificate are not approved by shareholders, the members of the Board of Directors will continue to be elected by a plurality standard.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE RESTATED CERTIFICATE IMPLEMENTING
MAJORITY VOTING FOR THE ELECTION OF DIRECTORS
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PROPOSAL 5
DECLASSIFICATION OF THE BOARD OF DIRECTORS
Background
Currently, our Board of Directors is divided into three classes, and members of each class are elected to serve for staggered three-year terms. A shareholder proposal asking the Company to take the steps necessary to declassify the Board and provide for the annual election of directors was presented to shareholders at the 2016 Annual Meeting of Shareholders, and the proposal received the favorable vote of approximately 53.5% of the outstanding shares of Common Stock.
In 2017, our Board, after carefully considering the results of the voting and, after extensive deliberations and discussions with outside advisers and shareholders, submitted a proposal to amend our Amended and Restated Certificate of Incorporation (“Restated Certificate”) to declassify the Board and unanimously recommended that shareholders vote “FOR” approval of the proposal. Despite receiving the affirmative vote of 78% of votes cast at the 2017 Annual Meeting, the proposal failed to receive the requisite votes to approve the proposal.
After careful review and consideration, our Board continues to believe that the amendments described below are in the best interests of the Company’s shareholders, and, in light of the strong support received at the 2017 Annual Meeting, our Board is now submitting a proposal to amend our Restated Certificate to declassify the Board and is unanimously recommending that shareholders vote “FOR” approval of the proposal.
If the proposal is approved by shareholders, the amendment would become effective upon the filing of an appropriate certificate of amendment with the Secretary of State of the State of Connecticut promptly following the 2019 Annual Meeting of Shareholders. A corresponding amendment would be made to the Company’s Amended and Restated Bylaws (the “Bylaws”).
The full text of the proposed amendment is set forth below. As amended, the Restated Certificate and Bylaws would provide that directors elected at the 2020 Annual Meeting and thereafter would be elected to one-year terms. The declassification of the Board would be phased in so that it would not affect the unexpired term of any director elected before the 2020 Annual Meeting. Therefore, the directors elected at the 2019 Annual Meeting would be elected to three-year terms, expiring at the 2022 Annual Meeting. The terms of the directors elected at the 2018 Annual Meeting would expire at the 2021 Annual Meeting, and the terms of the directors elected at the 2017 Annual Meeting would expire at the 2020 Annual Meeting. From and after the 2022 Annual Meeting, all directors would stand for election annually. Any director first elected by the Board as a result of a newly created directorship or to fill a vacancy on the Board of Directors would hold office until the next Annual Meeting of Shareholders.
Text of Proposed Amendment
Clause D(2) of Article Seventh of the Restated Certificate is proposed to be deleted in its entirety and replaced with the following language:
(2) Classes. Directors elected prior to the 2020 Annual Meeting of Shareholders shall continue to be, and are, divided into three classes, as nearly equal in number as possible, and shall hold office for a term expiring at the Annual Meeting of Shareholders held in the third year following the year of their respective elections and until their respective successors are duly elected and qualified. Directors elected at each Annual Meeting of Shareholders commencing with the Annual Meeting of Shareholders in 2020 shall hold office for a term of one year expiring at the next Annual Meeting of Shareholders and until their respective successors are duly elected and qualified.
Board Recommendation
The Board of Directors unanimously recommends that shareholders vote “FOR” approval of the proposed amendment to the Restated Certificate declassifying our Board of Directors.
Required Vote
In order to be approved by shareholders, the proposed amendment to the Restated Certificate requires the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of Common Stock. Because favorable votes are measured against our outstanding shares, abstentions and broker non-votes will have the same effect as a vote against the proposal. If the proposed amendments to the Restated Certificate are not approved by shareholders, the corresponding amendments to the Company’s Bylaws will not become effective and the Board of Directors will remain classified.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE RESTATED CERTIFICATE DECLASSIFYING
THE BOARD OF DIRECTORS OVER A THREE-YEAR PERIOD
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PROPOSAL 6
RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE COMPANY
Background
Pursuant to the Audit Committee Charter, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit the Company’s financial statements. On February 18, 2019,22, 2022, the Audit Committee reappointed PricewaterhouseCoopers LLP ("PwC") to serve as the Company's independent registered public accounting firm for the year ending December 31, 2019.2022. PwC has been retained as the Company's independent registered public accounting firm continuously since 2013.
In order to assure continuing external auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. Each year, the Audit Committee assesses the qualifications, performance and independence of the Company’s independent registered public accounting firm in accordance with regulatory requirements and guidelines. This includes a review of the firm’s internal quality control procedures, results of its most recent quality control reviews and steps taken to enhance the quality of its audits and issues raised by recent governmental investigations, if any. The Audit Committee also evaluates the firm’s ongoing independence, its audit strategy for the Company, the terms of its engagement and the firm’s capabilities and communications to the committee. Further, in conjunction with the mandated rotation of the external auditor’s lead engagement partner, the Audit Committee and its Chairman are directly involved in the selection of PwC’s new lead engagement partner.
Based on its most recent evaluation, the members of the Audit Committee and the Board of Directors believe that the continued retention of PwC to serve as the Company's independent registered public accounting firm is in the best interests of the Company and its shareholders. Although not legally required to do so, the Board historically has chosen to ask the Company’s shareholders to ratify the selection of the Company’s independent registered public accounting firm. In the event shareholders do not ratify the appointment, the Audit Committee may reconsider it. Even if the selection is ratified, the Audit Committee may, in its discretion, select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.
We expect that a representative of PwC will attend the annual meeting, and that such representative will have an opportunity to make a statement if he or she so desires. The representative will also be available to respond to appropriate questions from shareholders. See "INFORMATION ABOUT THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE—Board Meetings and Committees–Audit Committee" for additional information pertaining to the Audit Committee, its activity during 20182021 and related matters.
Board Recommendation
The Board of Directors unanimously recommends that shareholders vote "FOR" ratification of the appointment of PwC as our independent registered public accounting firm for 2019.
2022.
Required Vote
In order to be approved by shareholders, the proposal to ratify the appointment of PwC requires that there be more votes cast "FOR" the proposal than "AGAINST" the proposal. Broker non-votes and abstentions are not considered for purposes of determining the tally of votes cast "FOR" or "AGAINST" the proposal and, therefore, will not affect the outcome of the voting.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF PWC AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2018
2022 |
Principal Accounting Fees and Services
The Audit Committee is responsible for the audit fee negotiations associated with the Company’s retention of PwC. The following is a summary of the fees billed to the Company by PwC for professional services rendered for the years ended December 31, 20182021 and 2017:2020:
| | | Fee Category | | 2018 Fees | | 2017 Fees | Fee Category | | 2021 Fees | | 2020 Fees |
| | | (In Thousands) | | | (In Thousands) |
| Audit Fees | | $2,558.0 | | $2,343.0 | Audit Fees | | $2,053.0 | | $2,524.0 |
| Audit-Related Fees | | $2,300.0 | | $235.0 | Audit-Related Fees | | $292.0 | | $28.0 |
| Tax Fees | | $102.3 | | $146.0 | Tax Fees | | $197.0 | | $142.0 |
| Other Fees | | $1.0 | | $0.9 | Other Fees | | $1.0 | | $1.0 |
| Total Fees | | $4,961.3 | | 2,724.9 |
| Total Fees | | $2,543.0 | | $2,695.0 |
Audit Fees relate to services rendered for the audit of the Company’s consolidated financial statements and audit of the effectiveness of internal controls over financial reporting for the periods ended December 31, 20182021 and 2017;2020, and review of the interim consolidated financial statements included in quarterly reports and services normally provided by PwC in connection with statutory and regulatory filings or engagements.
Audit-Related Fees for 2018in 2021 were primarily related to effortsdue diligence costs for acquisitions that ultimately did not come to fruition and certain agreed-upon-procedures relating to financial certification in connection with corporate development activities including acquisition due diligence.environmental matters. The Audit-relatedAudit-Related Fees in 2017for 2020 were primarily related to efforts in connection with the adoption of the new revenue standard, Revenue from Contracts with Customers (Topic 606), and certain agreed-upon-procedures relating to financial certification in connection with environmental matters.
Tax Fees for 20182021 and 20172020 relate to tax planning services, including assistance with federal, state and international tax compliance, international tax planning and tax advice.
Other Fees relate to accounting research software.
Audit Committee Preapproval Policy
The Audit Committee Charter provides that the Audit Committee shall preapprove all audit and non-audit services performed by the Company's independent auditor in order to assure that such services do not impair the auditor’s independence. In furtherance of the foregoing, the Audit Committee has adopted a preapproval policy setting forth the policies and procedures to be followed with respect to such preapprovals. Among other things, the preapproval policy provides that the Audit Committee shall approve in advance all services – both audit and permitted non-audit services – provided to the Company or any of its subsidiaries by the Company’s independent auditor. The policy also provides that the Audit Committee shall not engage the Company’s independent auditor to provide to the Company or any of its subsidiaries any non-audit services that are unlawful under Section 10A of the Exchange Act or that would impair the independence of the independent auditor under applicable rules and regulations promulgated by the SEC or the Public Company Accounting Oversight Board (the "PCAOB").
Whenever the Audit Committee is asked to preapprove any audit or non-audit services that are proposed to be performed by the Company's independent auditor, the policy provides that the Audit Committee shall be provided with (i) a written description (which may consist of or include a description furnished to the Company by the independent auditor) of the services to be provided in detail sufficient to enable the committee to make an informed decision with regard to each proposed service, and, to the extent determinable, an estimate provided by the independent auditor of the fees for each of the services; and (ii) confirmation of the independent auditor that it would not be unlawful under Section 10A of the Exchange Act for the independent auditor to provide the listed non-audit services to the Company or any of its subsidiaries and that none of the services, if provided by the independent auditor to the Company or any of its subsidiaries, would impair the independence of the auditor under applicable rules and regulations promulgated by the SEC or the PCAOB.
The Chairman of the Audit Committee has been granted the power and authority to approve, upon the receipt of the documentation referenced above and on a case-by-case basis, any audit or non-audit services giving rise to fees of $100,000 or less at any time other than at a meeting of the Audit Committee. The Chairman is required to report any audit or non-audit services so approved to the Audit Committee at its next regularly scheduled meeting.
Audit Committee Report
The directors named below constituted the Audit Committee of the Board on February 18, 2019,22, 2022, the date on which the actions referenced in this report were taken. We each serve for a term of one year and until our successors are elected and qualify. The Board has made an affirmative determination that each of us is independent under the NYSE and SEC rules applicable to audit committee members and otherwise in accordance with the Committee’s charter and our Corporate Governance Principles. Further, the Board has made an affirmative determination that in light of our respective backgrounds and experiences, we each meet the financial literacy requirements for service to the Audit Committee, and that Ms. Barry and Messrs. Kuechle and Minnich each of us possesses the qualifications necessary for service as an "audit committee financial expert," as that term is defined by applicable SEC regulations.
We oversee the Company’s financial reporting process on behalf of the Board of Directors. Management is responsible for the Company’s financial statements and the financial reporting process, including implementing and maintaining effective internal control over financial reporting and for the assessment of, and reporting on, the effectiveness of internal control over financial reporting. The independent auditor is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles and for expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
We reviewed and discussed with management and PwC the Company’s audited consolidated financial statements for the year ended December 31, 2018,2021, the representations of management and PwC’s opinion regarding such statements, and the Company’s system of internal control over financial reporting as required by Section 404 of the Sarbanes Oxley Act. We discussed with the Company’s Chief Audit Executive and with PwC the overall scope and plan of their individual audits and reviewed the results of their examinations and the overall quality of the Company’s financial reporting. We also received from PwC a written report relative to matters required by Auditing Standard No. 1301, "Communications with Audit Committees," issued by the PCAOB and the SEC, and discussed the report with PwC and management. During 2018,2021, we monitored the qualifications, performance, effectiveness and independence of PwC, the Company’s independent registered public accounting firm for such year. In that regard, we received from PwC, and discussed with it, the written report required by the applicable requirements of the PCAOB regarding PwC’s communications with us concerning PwC’s independence. Based upon these reviews and discussions and in reliance upon them, we recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2021.
We also approved PwC as the Company's independent registered public accounting firm for 2019,2022, which approval has been ratified by the Board and is being recommended for ratification by shareholders at the 20192022 Annual Meeting of Shareholders.
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| Audit Committee Scott E. Kuechle, Chair Aisha M. Barry Michelle J. Lohmeier George E. Minnich Jennifer M. Pollino
Thomas W. Rabaut
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| This report shall not be deemed to be incorporated by reference by any general statement incorporating this proxy statement by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, as amended, and shall not otherwise be deemed filed under such statutes. |
PROPOSAL 4
NON-BINDING ADVISORY VOTE TO PROVIDE FOR AN INDEPENDENT CHAIR
Background
John R. Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278, submitted a proposal for consideration at the Annual Meeting (the “Independent Chair Proposal”). By letter, dated October 1, 2021, Mr. Chevedden’s broker confirmed that, since December 1, 2019, Mr. Chevedden continuously owned “no fewer than” 100 shares of the Common Stock of the Company, and Mr. Chevedden affirmed his intention to continue to hold those securities through the date of the Annual Meeting. The Independent Chair Proposal, including the caption, graphic and supporting statement submitted by the proponent, are set forth below and will be voted on at the Annual Meeting upon proper presentation by Mr. Chevedden.
Independent Chair Proposal
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Proposal 4 – Independent Board Chairman Shareholders request that the Board of Directors adopt a policy, and amend the governing documents as necessary, to require the Chair of the Board of Directors to be an independent member of the Board. This proposal topic won 52% support at Boeing and 54% support at Baxter International in 2020. Boeing then adopted this proposal topic in 2020. The roles of Chairman and CEO are fundamentally different and should be held by 2 directors, a CEO and a Chairman who is completely independent of the CEO and our company. With the current CEO serving as Chair this means giving up a substantial check and balance safeguard that can only occur with an independent Board Chairman. A lead director is no substitute for an independent board chairman. A lead director cannot call a special shareholder meeting and cannot even call a special meeting of the board. A lead director can delegate most of the lead director duties to the CEO office and then simply rubber-stamp it. There is no way shareholders can be sure of what goes on. The lack of an independent Board Chairman is an unfortunate way to discourage new outside ideas and an unfortunate way to encourage the CEO to pursue pet projects that would not stand up to effective oversight. In an example from a company whose share price went from $130 to $200 in 10 months, the 2020 Lowe’s annual meeting proxy said Lowe’s independent directors determined that having a separate Chairman and Chief Executive Officer affords the CEO the opportunity to focus his time and energy on managing the business and allows the Chairman to devote his time and attention to Board oversight and governance. If an independent director is not available from inside or outside the company then a non-independent director from inside or outside the company, other than the CEO, can be named as Chairman for a term of 3 months to 6 months. This policy could be phased in when there is a contract renewal for our current CEO or for the next CEO transition. Please vote yes: Independent Board Chairman – Proposal 4 |
FOR THE REASONS SET FORTH BELOW, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
“AGAINST” THE INDEPENDENT CHAIR PROPOSAL
Board Response to Independent Chair Proposal
Kaman and its shareholders are best served when leadership choices are made by the Board on a case-by-case basis and not pursuant to a predetermined policy. Kaman’s Corporate Governance Principles provide that the Board does not have a policy on whether or not the role of the Chair and Chief Executive Officer should be separate. Instead, the Corporate Governance Principles allow the Board to make such a determination in the way that seems best for the Company at a given point in time. This approach provides the Board with the necessary flexibility to determine whether the positions should be held by the same person or by separate persons based on the leadership needs of Kaman. Adopting a policy to restrict the Board’s discretion in selecting the Chair, as well as restricting the ability to combine the positions of Chair and Chief Executive Officer, would deprive the Board of the ability to select the most qualified and appropriate individual to lead the Board as Chair.
The Board has previously and effectively used this flexibility to separate the role of Chair and CEO during leadership transitions, and most recently, with the CEO transition from Mr. Keating to Mr. Walsh, with Mr. Keating continuing as Board Chair through the date of the 2021 Annual Meeting of Shareholders. The practice of separating the roles during leadership transitions so that a company’s former CEO or another experienced director, not necessarily an independent director, can continue to provide perspective to a new CEO is a proven, successful approach among companies and can help to facilitate a seamless leadership transition. It is one example of the advantages to our Company and shareholders of our current governance structure, which enables the Board to determine the best construct for the Company at that particular time.
The Board has given careful consideration to separating the roles of Chair and Chief Executive Officer and has determined that, at this time, the Company and its shareholders are best served by having Mr. Walsh serve as both Chair of the Board of Directors and Chief Executive Officer and by having Ms. Pollino serve as the Company’s Lead Independent Director. Mr. Walsh’s combined role as Chair and Chief Executive Officer promotes unified leadership and direction for the Board and executive management and it allows for a single, clear focus to execute Kaman’s strategic initiatives and business plans. Ms. Pollino, meanwhile, provides effective independent judgment and oversight of management. The Board re-evaluates this approach each year and determines the appropriate Board leadership structure for the ensuing year based on the particular facts and circumstances existing at that time.
Selecting an appropriate leadership structure is one of the most important tasks of any board. If the proposal were implemented, it would prevent future Boards from having the flexibility to determine the best leadership structure for Kaman, regardless of what the Board believes to be in the best interests of the Company and its shareholders, to their potential detriment.
Kaman’s strong and independent Board effectively oversees our management and provides effective oversight of the Company’s business and affairs. The Board of Directors is composed of independent, active and effective directors. Over the past two years, we have added two highly qualified, independent directors to the Board in Aisha M. Barry and Michelle J. Lohmeier. In addition, seven of our eight directors standing for reelection meet the independence requirements of the applicable SEC and NYSE rules and the Board’s standards for determining director independence. All Board committees also consist solely of independent directors and the Board holds regular executive sessions of independent directors, led by our Lead Independent Director.
Our Lead Independent Director, who has a robust set of roles and functions, provides effective and independent leadership. The Board annually appoints from among its members an individual to serve as Lead Independent Director, assuming the Chair is not an independent director. The Lead Independent Director performs the following roles and functions:
Meetings and Executive Sessions
•Serves as a member of the Corporate Governance Committee.
•Chairs the Board’s executive sessions.
•Chairs Board meetings at which the Chair and Vice Chair (if any) are not in attendance.
•Calls additional meetings of the independent directors.
•Facilitates discussion and open dialogue among the independent directors during Board meetings, executive sessions and other interactions outside Board meetings.
Relationship with the Chair and Management
•Serves as a liaison between the Chair and the independent directors, facilitating communications and the achievement of consensus.
•Provides counsel to the Chair and Chief Executive Officer, including the provision of appropriate feedback regarding the effectiveness of Board meetings, and otherwise as needed or requested.
Oversight of Information Provided to the Board
•Coordinates with the Chair to review and approve all Board meeting agendas and meeting schedules, and ensure that there is sufficient time for discussion of all agenda items.
•Coordinates with the Chair on the appropriateness (including quality and quantity) and timeliness of information provided to the Board.
•Authorizes the retention of third-party advisors and consultants who report directly to the Board, when necessary or appropriate.
Board and Leadership Evaluation
•In consultation and coordination with the Corporate Governance Committee and the other committees of the Board, reviews and reports on the results of the annual Board and committee performance evaluations.
•Periodically meets with independent directors to discuss Board and committee performance, effectiveness and composition.
•Leads the independent directors’ evaluation of the effectiveness of the Chair (in that capacity), including his/her interactions with directors and ability to provide leadership and direction to the Board.
Shareholder Communication
•If requested, and in coordination with senior management, participates in consultations and direct communications with shareholders.
CEO Succession
•In consultation and coordination with the Corporate Governance Committee, oversees the Board’s CEO succession planning process.
Crisis Management
•Plays an increased role in crisis management oversight, when and as appropriate under the circumstances.
Other Responsibilities
•The Lead Independent Director also has such other responsibilities as the Board may delegate from time to time.
The Board believes that the Lead Independent Director role at Kaman, through the duties and responsibilities listed above, enables the independent directors to effectively provide for the independent oversight of management and the CEO / Board Chair. Importantly, the Lead Independent Director reviews and approves all Board meeting agendas and meeting schedules and coordinates with the CEO / Board Chair to ensure that there is sufficient time for discussion of all agenda items. At the end of each regularly scheduled Board meeting, she meets privately in executive session with the independent directors and, shortly thereafter, follows up with the CEO / Board Chair to discuss any matters of concern. In so doing, she serves as a liaison between the independent directors and the CEO / Board Chair, providing appropriate feedback relating to the effectiveness of Board meetings, the identification of post-meeting action items and the development of subsequent meeting agendas. She also leads the annual self-evaluations of the full Board and the Committees she chairs, as well as the annual performance evaluation of the CEO / Board Chair. Finally, she makes herself available to meet with shareholders on a case-by-case basis on matters of particular importance to shareholders.
The designation of a Lead Independent Director by the independent directors of the Board demonstrates the Board’s continuing commitment to strong corporate governance, Board independence and the important role of the Lead Independent Director. In addition, there are several other structural safeguards that provide effective independent oversight by the Board. Seven of the Company’s eight directors are independent, and the Board regularly holds scheduled sessions of the independent directors at each Board meeting, which are led by the Lead Independent Director. The Chairs and all members of the Committees ‐ Audit, Compensation, Finance and Governance ‐ are independent directors. The independent directors have
ample opportunity to, and regularly do, assess the performance of the CEO and provide meaningful direction. The Board is responsible for the election of the CEO and oversees a robust succession planning process, closely involved in identifying and developing potential successors and effecting orderly CEO transitions.
In recent years, the Board has adopted numerous other governance practices that further demonstrate its commitment to good corporate governance for our shareholders. We have adopted significant stock ownership guidelines for both our employees and our directors, prohibited the hedging and pledging of Company stock, and implemented a strong compensation recoupment policy, to name a few such examples. We have also taken action to declassify our Board of Directors, implement majority voting in the election of directors, adopt proxy access and eliminate the super-majority voting provisions previously set forth in the Company’s organizational documents. Management routinely communicates with shareholders to understand and seek to address any concerns they may have or suggestions as to how we can continue to enhance our governance practices.
In addition, the Board has successfully recruited, and our shareholders have approved, a diverse group of accomplished, independent directors who bring a wide range of experiences to benefit the Company. The average tenure of our independent directors is expected to drop to 8.9 years following the retirement of Mr. Minnich, reflecting a healthy mix of seasoned tenure and new perspective. As part of its ongoing and active Board refreshment efforts, the Board has added two new independent directors, both of whom are women, in the last two years.
The Board believes that the Company’s balanced and flexible corporate governance structure, including a Lead Independent Director with well defined, comprehensive and meaningful duties, and strong corporate governance practices, make it not only unnecessary, but ill‐advised to adopt a policy that would mandate that the Chair be an independent director. The Board believes that adopting such a rule would only limit the Board’s ability to select the director it believes is best suited to serve as Chair of the Board, and is not in the best interests of the Company and its shareholders.
Board Recommendation
For the foregoing reasons, the Board of Directors believes that implementing the Independent Chair Proposal is not in the best interests of Kaman and our shareholders. The Board believes that Kaman’s current Corporate Governance Principles, which allow the Board to determine the best leadership structure at any given time after considering all facts and circumstances, together with the Company’s strong governance principles, policies and practices, already provide shareholders with the optimal leadership structure at this time. Therefore, the Board unanimously recommends a vote “AGAINST” the Independent Chair Proposal.
Recommendation Only
Shareholders should be aware that the Independent Chair Proposal is simply a request that the Board take the action stated in the proposal and is not binding on the Board. Shareholder approval will not, in and of itself, result in the modification of any Chair provisions in the Company’s Governance Documents. Only in the event that the Independent Chair Proposal is approved by shareholders at the Annual Meeting would the Board consider whether, when and how to modify any Chair provisions in the Company’s governance documents.
Required Vote
The Independent Chair Proposal will be approved if more votes cast “FOR” the proposal than are cast “AGAINST” the proposal, assuming a quorum is present. Broker non-votes and abstentions are not considered for purposes of determining the tally of votes cast “FOR” or “AGAINST” the proposal and, therefore, will not affect the outcome of the voting, but they will count towards the presence of a quorum.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
“AGAINST” THE INDEPENDENT CHAIR PROPOSAL
SHAREHOLDER PROPOSALS FOR 20202023 ANNUAL MEETING
Pursuant to SEC rules, proposals of shareholders intended to be included in the Company’s 20202023 proxy materials and submitted for action at the 20202023 Annual Meeting of Shareholders generally must be received by the Company at its corporate headquarters, 1332 Blue Hills Avenue, Bloomfield, Connecticut 06002 on or before November 5, 2019. 4, 2022.
Pursuant to SEC rules and the Company’s Bylaws, shareholders who wish to present a proposal at the 20202023 Annual Meeting of Shareholders, when such proposal is not intended to be included in the Company’s proxy materials relating to that meeting, or submit a nomination for director, must give advance notice to the Company at its corporate headquarters, 1332 Blue Hills Avenue, Bloomfield, Connecticut 06002 on or before February 2, 2020,January 20, 2023, but no earlier than January 18, 2020,December 21, 2022, which is the period not less than 7590 days, nor more than 90120 days, prior to the first anniversary of the Company’s annual meeting of shareholders to be held on April 17, 2019. 20, 2022.
For proxy access nominees to be considered at the 2023 Annual Meeting of Shareholders, the nomination notice must be received at the Company's corporate headquarters on or before November 4, 2022, but no earlier than October 5, 2022, which is the period not less than 120 days, nor more than 150 days, prior to the first anniversary of the date this Proxy Statement was first mailed to shareholders.
To comply with the universal proxy rules (once effective), shareholders who intend to solicit proxies in support of director nominees other than the Company's nominees must provide notice that sets forth the information required by Rule 14a-19 under the Securities Exchange Act of 1934, as amended, no later than February 19, 2023.
Please review the Company’s
Bylaws which contain additional advance notice requirements, including with respect to advance notice of shareholder proposals and Director nominations. These requirements are briefly summarized on page 11.
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ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE 2019 ANNUAL MEETING.
IF YOU CANNOT ATTEND THE ANNUAL MEETING, PLEASE VOTE YOUR SHARES.
YOUR VOTE IS IMPORTANT!
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Annex I
NATIONAL SURVEY DATA USED BY
INDEPENDENT COMPENSATION CONSULTANT
FOR 2017 MARKET REPORT
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| | Compensation Element | | | | | |
Surveys | | Base
Salary
| | Annual
Bonus
Target
| | Long-term
Compensation
Target
| | Approximate Number of
Participants
| | Nature of Participants |
AonHewitt — Executive Compensation Survey | | X | | X | | X | | 654 | | Fortune 1000 Companies |
Equilar — Executive Compensation Survey | | X | | X | | X | | 3,000 | | Russell 3000 CompaniesALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE 2022 ANNUAL MEETING.
IF YOU CANNOT ATTEND THE ANNUAL MEETING, PLEASE VOTE YOUR SHARES.
YOUR VOTE IS IMPORTANT! |
PEER GROUP COMPANIES
USED BY INDEPENDENT COMPENSATION CONSULTANT
FOR 2017 MARKET REPORT†
SUPPLEMENTAL INFORMATION: NON-GAAP RECONCILIATIONS
For purposes of determining the level of achievement or satisfaction of the performance measures established in connection with the 2021 annual incentive compensation awards and the LTIP Awards covering the 2019-2021 performance period, the Compensation Committee approved certain specified modifications to the calculation of Company performance that were applicable to all participants. Such modifications included, among others, the exclusion or inclusion of the impact to the Company's financial results of the following items, whichever would produce the higher award:
•the effect of changes in tax law or accounting principles;
•the effects of changes in applicable foreign currency exchange rates relating to non-U.S. denominated financial performance;
•costs and losses associated with restructuring, business consolidations, severance, management realignments or closures of the Company or any of its subsidiaries, affiliates and product lines;
•acquisition and divestiture due diligence and integration costs and the adverse effects of acquisitions and divestitures, including spin-offs;
•effects of losses generated by divested operations and losses associated with discontinued business operations or product lines;
•the impact of any transaction costs and accounting charges incurred in connection with the issuance equity or issuance of or refinancing of new or existing debt securities and facilities, the settlement or unwinding of existing convertible bond hedge instruments and outstanding warrants;
•the impact of any costs and accounting charges in respect of pension curtailment adjustments attributable to pension expense charged to company contracts with the U.S. Government, as determined under U.S. Cost Accounting Standard 418, following the freeze of future benefit accruals under the Pension Plan;
•charges associated with environmental matters;
•asset write-downs or impairments, including, but not limited to, goodwill and other intangible assets;
•new capital investments and related depreciation;
•litigation or claim judgments or settlements including contract claim settlements with customers and suppliers;
•the impact of charges in connection with contract terminations, including but not limited to, write-off of inventory, tooling, equipment and non-recurring costs;
•any impact resulting from the delay in cash receipts by a customer where there is no underlying dispute as to payment;
•any adverse impact to the company’s consolidated financial statements if the U.S. Government prohibits and/or delays sales of our products to customers; and
•any item of an unusual nature or of a type that indicates infrequency of occurrence, or both.
Adjusting for the impact of these items results in the following non-GAAP financial measures that are are discussed in this proxy statement: (i) Adjusted Consolidated EBITDA; (ii) Adjusted Consolidated Free Cash Flow; and (iii) Average Adjusted ROIC. As discussed above, these non-GAAP financial measures are presented because they are used to assess the Company's financial performance in relation to corresponding financial targets for purposes of determining annual and long-term incentive compensation payouts. The Company believes that the presentation of these non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect the Company’s core operating performance because such items are outside the control of the Company or are inherently unusual, non-operating, unpredictable, non-recurring, or non-cash. The Company does not intend for this information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. We define the Non-GAAP measures used in this proxy statement as follows:
Adjusted Consolidated EBITDA: Adjusted Consolidated EBITDA is defined as earnings from continuing operations before interest, taxes, other expense (income), net, depreciation and amortization and certain items that are not indicative of the operating performance of the Company's for the period presented. Adjusted Consolidated EBITDA differs from earnings from continuing operations, as calculated in accordance with GAAP, in that it excludes interest expense, net, income tax expense, depreciation and amortization, other expense (income), net, non-service pension and post retirement benefit expense (income), and certain items listed above that are not indicative of the operating performance of the Company for the period presented. We have made numerous investments in our business, such as acquisitions and capital expenditures, including facility
improvements, new machinery and equipment, improvements to our information technology infrastructure and ERP systems, which we have adjusted for in Adjusted Consolidated EBITDA. Adjusted Consolidated EBITDA also does not give effect to cash used for debt service requirements and thus does not reflect funds available for distributions, reinvestments or other discretionary uses. Management believes Adjusted Consolidated EBITDA provides an additional perspective on the operating results of the organization and its earnings capacity and helps improve the comparability of our results between periods because it provides a view of our operations that excludes items that management believes are not reflective of operating performance, such as items traditionally removed from net earnings in the calculation of EBITDA as well as Other expense (income), net and certain items that are not indicative of the operating performance of the Company for the period presented. Adjusted Consolidated EBITDA is not presented as an alternative measure of operating performance, as determined in accordance with GAAP.
The following table illustrates the calculation of Adjusted Consolidated EBITDA using GAAP measures (in millions):
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ISS Peer Group | | Company Peer Group | | Equilar Peer Group‡
2021 ADJUSTED CONSOLIDATED EBITDA |
A. Schulman, Inc.Earnings from continuing operations, net of tax | $ | A. Schulman, Inc.43.7 | | AAR Corp. |
AAR Corp.Interest expense, net | 16.3 | AAR Corp. | | Alliant Techsystems Inc. |
Air Lease CorporationIncome tax (benefit) expense | 16.8 | Albany International Corp. | | Applied Industrial Technologies, Inc. |
Aircastle LimitedNon-service pension and post retirement benefit income | (26.2) | Alliant Techsystems Inc. | | B/E Aerospace Inc. |
Albany International Corp.Other income, net | (0.1) | Applied Industrial Technologies, Inc. | | Barnes Group, Inc. |
Applied Industrial Technologies, Inc.Depreciation and amortization | 36.6 | Barnes Group, Inc. | | Curtiss-Wright Corporation |
Barnes Group, Inc. | $ | Callaway Golf Company87.1 | | Esterline Technologies Corporation |
Beacon Roofing Supply, Inc.Other Adjustments: | | Curtiss Wright Corporation | | GenCorp Inc. |
Curtiss-Wright CorporationAsset write-downs and impairments | $ | Esterline Technologies Corporation1.0 | | Hexcel Corporation |
Ducommun IncorporatedProgram related matters | 1.6 | H.B. Fuller Company | | Moog Inc. |
DXP Enterprises, Inc.Acquisition and divestiture related costs | 1.0 | HEICO Corporation | | Teledyne Technologies Incorporated |
Esterline Technologies CorporationCosts associated with restructuring, severance and management realignments | 7.4 | Hexcel Corporation | | Triumph Group, Inc. |
Fastenal CompanyAdjusted EBITDA | $ | Loral Space & Communications98.1 | | TransDigm Group Incorporated |
GATX Corporation | | Moog Inc. | | Wesco Aircraft Holdings, Inc. |
H&E Equipment Services, Inc. | | Nordson Corporation | | Woodward, Inc. |
H.B. Fuller Company | | Plexus Corp. | | |
HEICO Corporation | | Stepan Company | | |
Hexcel Corporation | | Superior Industries International, Inc. | | |
MSC Industrial Direct Co, Inc. | | Teledyne Technologies Incorporated | | |
Nordson Corporation | | Triumph Group, Inc. | | |
Stepan Company | | Tupperware Brands Corporation | | |
Teledyne Technologies Incorporated | | Woodward, Inc. | | |
Titan Machinery Inc. | | | | |
Woodward, Inc. | | | | |
Adjusted Consolidated Free Cash Flow: Adjusted Consolidated Free Cash Flow is defined as GAAP “Net cash provided by (used in) operating activities from continuing operations” in a period less “Expenditures for property, plant & equipment” in the same period. Management believes Adjusted Consolidated Free Cash Flow provides an important perspective on our ability to generate cash from our business operations and, as such, that it is an important financial measure for use in evaluating the Company's financial performance. Adjusted Consolidated Free Cash Flow should not be viewed as representing the residual cash flow available for discretionary expenditures such as dividends to shareholders or acquisitions, as it may exclude certain mandatory expenditures such as repayment of maturing debt and other contractual obligations. Management uses Adjusted Consolidated Free Cash Flow internally to assess overall liquidity.
The following table illustrates the calculation of Adjusted Consolidated Free Cash Flow using “Net cash provided by (used in) operating activities from continuing operations” and “Expenditures for property, plant & equipment”, GAAP measures from the Condensed Consolidated Statements of Cash Flows of the Company (in millions):
| | | | | |
†2021 ADJUSTED CONSOLIDATED FREE CASH FLOW |
| Net cash (used in) provided by operating activities | Companies shown in blue were included in the Company Peer Group at the time of the 2017 Market Report.$ |
| 48.7 | |
‡Cash paid for acquired retention plans | Equilar Peer Group is also utilized by Glass, Lewis & Co.25.1 | |
| Expenditures for property, plant and equipment | (17.5) | |
| Free Cash Flow | $ | 56.3 | |
| Other Adjustments: | |
| Asset write-downs and impairments | $ | 0.8 | |
| Program related matters | 2.6 | |
| Acquisition and divestiture related costs | 0.8 | |
| Costs associated with restructuring, severance and management realignments | 5.7 | |
| Adjusted Free Cash Flow | $ | 66.2 | |
Average Adjusted Return on Invested Capital (ROIC): Average Adjusted ROIC is defined as GAAP "Net earnings" in a period adjusted for certain items as listed above that are not indicative of the operating performance of the Company for the period presented, divided by Total Capitalization (GAAP Debt not adjusted for debt issuance costs and GAAP Shareholder's Equity),adjusted for certain items as listed above that are not indicative of the operating performance of the Company for the period presented. We have made numerous investments in our business, such as acquisitions and capital expenditures, including facility improvements, new machinery and equipment, improvements to our information technology infrastructure and ERP systems, which we have adjusted for in Average Adjusted ROIC. Average Adjusted ROIC provides perspective on how well the Company is using its capital to generate profits over a three-year period.
| | | | | | | | | | | | | | | | | |
| 2019 - 2021 AVERAGE ADJUSTED ROIC |
| 2019 | | 2020 | | 2021 |
| Net earnings (as reported) | $ | 209.8 | | | $ | (69.7) | | | $ | 43.7 | |
| Asset write-downs and impairments | 3.2 | | | 86.6 | | | — | |
| Acquisition and divestiture related costs | 4.7 | | | 33.5 | | | 1.8 | |
| Tax and other related matters | — | | | (1.6) | | | 3.4 | |
| Costs associated with restructuring, severance and management realignments | 6.6 | | | 9.8 | | | 4.8 | |
| $ | 224.3 | | | $ | 58.6 | | | $ | 53.7 | |
| | | | | |
| Total Debt (as reported) | $ | 193.5 | | | $ | 195.1 | | | $ | 196.2 | |
| Total Equity (as reported) | 823.2 | | | 746.4 | | | 796.3 | |
| Asset write-downs and impairments | 3.2 | | | 86.6 | | | — | |
| Acquisition and divestiture related costs | 4.7 | | | 33.5 | | | 1.8 | |
| Tax and other related matters | — | | | (1.6) | | | 3.4 | |
| Costs associated with restructuring, severance and management realignments | 6.6 | | | 9.8 | | | 4.8 | |
| Adjusted Equity | $ | 837.7 | | | $ | 874.7 | | | $ | 806.3 | |
| Total Capitalization | $ | 1,031.2 | | | $ | 1,069.8 | | | $ | 1,002.5 | |
| | | | | |
| Adjusted ROIC | 21.8 | % | | 5.5 | % | | 5.4 | % |
| | | | | |
| Average Adjusted ROIC | 10.9% |
