You may vote in person at the Annual Meeting. You may also be represented by another person at the meeting by executing a proxy properly designating that person. If you are the beneficial owner of shares held in “street name,” you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the meeting.
You may vote by calling the toll-free telephone number indicated on the voting instructions you will receive. Easy-to-follow voice prompts allow you to vote your shares and confirm that your voting instructions have been properly recorded.
You may vote by going to the Internet web site indicated on the voting instructions you will receive. Confirmation that your voting instructions have been properly recorded will be provided.
You may vote by completing, signing, dating and returning a proxy card which will be mailed to you if you request delivery of a full set of proxy materials. A postage-paid envelope will be provided along with the proxy card.
Telephone and Internet voting for stockholders of record will be available until 11:59 p.m. Central time on May 14, 2018.10, 2021. A mailed proxy card must be received by May 14, 2018,10, 2021, in order to be voted at the Annual Meeting. The availability of telephone and Internet voting for beneficial owners of other shares held in “street name” will depend on your broker, bank or other holder of record and we recommend that you follow the voting instructions on the Notice of Internet Availability that you receive from them.
If you are mailed a set of proxy materials and a proxy card or voting instruction card and you choose to vote by telephone or by Internet, you do not have to return your proxy card or voting instruction card. However, even if you plan to attend the Annual Meeting, we recommend that you vote your shares in advance so that your vote will be counted if you later decide not to attend the meeting.
Annual Report on Form 10-K are available without charge upon written request to Scott Asbjornson, 2425 S. Yukon, Tulsa, Oklahoma 74107, or may also be obtained at the Securities and Exchange Commission’s website at www.sec.gov.www.sec.gov.
(2) This share ownership information was provided in a Schedule 13G/A filed January 23, 2018,27, 2021, which discloses that BlackRock, Inc. possesses the sole voting power of 5,031,8326,102,893 shares and sole dispositive power of all of the reported shares.
(3) This share ownership information was provided in a Schedule 13G/A filed on February 15, 2018,16, 2021, which discloses that Kayne Anderson Rudnick Investment Management LLC possesses sole voting power and sole dispositive power of 1,108,100 shares, and, with Virtus Investment Advisers, Inc. possesses shared voting power of 4,085,400 shares and shared dispositive power of 4,085,400 shares.
|
| | | | | | |
Name and address of beneficial owner | | Number of shares owned |
| (1) | Percent of Class |
|
Norman H. Asbjornson | | 9,815,887 |
| (2) | 18.72 | % |
Jack E. Short | | 60,835 |
| (3) | * |
|
Paul K. Lackey, Jr. | | 69,860 |
| (3) | * |
|
A. H. McElroy II | | 69,860 |
| (3) | * |
|
Mikel D. Crews | | 60,208 |
| (4) | * |
|
Gary D. Fields | | 19,811 |
| (8) | * |
|
Angela E. Kouplen | | 5,061 |
| (9) | * |
|
Stephen O. LeClair | | 1,687 |
| (10) | * |
|
Scott M. Asbjornson | | 1,398,347 |
| (5) | 2.67 | % |
Kathy I. Sheffield | | 99,516 |
| (6) | * |
|
Sam J. Neale | | 13,572 |
| (7) | * |
|
Robert G. Fergus | | 26,168 |
| | * |
|
Directors, nominees and Named Executive Officers as a group (12 persons) | | 11,640,812 |
| (11) | 22.20 | % |
(1) All shares are held beneficially and of record and the owner has sole voting and investment power with respect thereto, except as otherwise noted.
(2) Includes 6,479 shares under AAON's 401(k) plan, 44,162 shares issuable upon exercise of stock options exercisable currently or within 60 days of the annual meeting, 13,217 shares of restricted stock that will vest within 60 days of the annual meeting, 154,000 shares owned by his foundation and 554,108 shares held as trustee of trusts for the benefit of his grandchildren.
(3) Includes 5,061 shares of restricted stock that will vest within 60 days of the annual meeting.
(4) Includes 41,563 shares under AAON's 401(k) plan, 10,975 shares issuable upon exercise of stock options exercisable currently or within 60 days of the annual meeting and 91 shares of restricted stock that will vest within 60 days of the annual meeting.
(5) Includes 806 shares under AAON's 401(k) plan, 8,807 shares issuable upon exercise of stock options exercisable currently or within 60 days of the annual meeting, 1,857 shares of restricted stock that will vest within 60 days of the annual meeting and 540,000 shares held as custodian for the benefit of his children.
(6) Includes 8 shares under AAON's 401(k) plan and 77,435 shares issuable upon exercise of stock options exercisable currently or within 60 days of the annual meeting.
(7) Includes 2,948 shares under AAON's 401(k) plan.
(8) Includes 1,436shares under AAON's 401(k) plan, and 8,859 shares issuable upon exercise of stock options exercisable currently or within 60 days of the annual meeting and 5,061 shares of restricted stock that will vest within 60 days of the annual meeting.
(9) Includes 3,374 shares of restricted stock that will vest within 60 days of the annual meeting.
(10) Includes 1,687 shares of restricted stock that will vest within 60 days of the annual meeting.
(11) Includes 150,238 shares issuable upon the exercise of stock options that are exercisable currently or within 60 days of the annual meeting and 40,470 shares of restricted stock that will vest within 60 days of the annual meeting by all directors and Named Executive Officers.
* Less than 1%.
DIRECTORS AND EXECUTIVE OFFICERS
General
Our Board of Directors is currently comprised of seven members. Our Bylaws (the "Bylaws") divide the Board of Directors into three classes having staggered terms of three years each, with Classes III, I and II having terms expiring at the Annual Meeting of Stockholders in 2018, 20192021, 2022 and 2020,2023, respectively. The Bylaws provide that a stockholder may nominate a director for election at an annual meeting if written notice is given to us not less than 6090 and not more than 90120 days in advance of the anniversary date of the immediately preceding annual meeting.
On the recommendation of our Governance Committee, the Board of Directors has nominated Norman H. Asbjornson, Gary D. Fields and Angela E. Kouplen, the current members of the Class III Directors, whose terms expire at the 20182021 Annual Meeting, for re-election to the Board. The persons named in the proxy will vote for the election of each of Mr. Asbjornson, Mr. Fields and Ms. Kouplen. Each of the above named nominees have consented to being named in this Proxy Statement and to serve if elected.
If any nominee becomes unavailable for any reason, the shares represented by the proxies will be voted for such other person, if any, as may be designated by the Board of Directors. However, the Board has no reason to believe that any nominee will be unavailable.
Nominees:
Class III - Terms Expire in 20182021
| | | | | | | | | | | |
Name | Age | Current Position | Director Since |
Norman H. Asbjornson | 85 | Director and Executive Chairman | 1988 |
Gary D. Fields | 61 | Director, President and CEO | 2015 |
Angela E. Kouplen | 47 | Director | 2016 |
|
| | | |
Name | Age | Current Position | Director Since |
Norman H. Asbjornson | 82 | Director and Chief Executive Officer | 1989 |
Gary D. Fields | 58 | Director and President | 2015 |
Angela E. Kouplen | 44 | Director | 2016 |
Directors Continuing in Office:
Class I - Terms Expire in 20192022
| | | | | | | | | | | |
Name | Age | Current Position | Director Since |
Paul K. Lackey, Jr. | 77 | Director | 2007 |
A.H. McElroy II | 58 | Director | 2007 |
| | | |
|
| | | |
Name | Age | Current Position | Director Since |
Paul K. Lackey, Jr. | 74 | Director | 2007 |
A.H. McElroy II | 55 | Director | 2007 |
Class II - Terms Expire in 20202023
| | | | | | | | | | | |
Name | Age | Current Position | Director Since |
Caron A. Lawhorn | 60 | Director | 2019 |
Stephen O. LeClair | 52 | Director | 2017 |
| | | |
|
| | | |
Name | Age | Current Position | Director Since |
Jack E. Short | 77 | Director | 2004 |
Stephen O. LeClair | 49 | Director | 2017 |
After the Annual Meeting, assuming the stockholders elect the two nominees of the Board of Directors as set forth above, the Board of Directors of the Company will be:
|
| | | | | | | | |
Name | Age | Position | |
Norman H. Asbjornson | 8285 | Director and Chief Executive OfficerChairman | |
Gary D. Fields | 5861 | Director, Chief Executive Officer and President | |
Angela E. Kouplen | 4447 | Director | |
Paul K. Lackey, Jr. | 7477 | Lead Independent Director | |
Caron A. Lawhorn | 60 | Director | |
SteveStephen O. LeClair | 4952 | Director | |
A.H. McElroy II | 5558 | Director |
Jack E. Short | 77 | Director |
Biographical Information
Set forth below is a description of the background of each of our continuing directors, nominees for director (* indicates nominees for director) and executive officers. The term of office of each officer ends on the date of the Annual Meeting, subject to extension upon re-election.
Directors
*Norman H. Asbjornson has served as Chief Executive Officer andof AAON since its inception until May 2020, when he transitioned to his current position of Executive Chairman. He has served as a director of AAON since 1989,its inception, and currently serves in the class of directors whose terms will expire at the 20182021 Annual Meeting of stockholders.Meeting. Mr. Asbjornson also served as President of AAON from its inception until November 2016, when the Board of Directors appointed Mr. Gary D. Fields as President. Mr. Asbjornson also serves as the PresidentExecutive Chairman of the Board of AAON, Inc., an Oklahoma corporation ("AAON-Oklahoma") and as the Chairman of the Board of AAON Coil Products, Inc., both our wholly-owned subsidiaries.
Mr. Asbjornson is one of the foundersfounder of the Company, and his intimate knowledge of the HVAC industry, both from a technical and a business perspective, brings to the Board a unique insight into the Company’s operations in particular, as well as the environment in which the Company operates.
Jack E. Short*Gary D. Fields has served as President of AAON since November 2016 and Chief Executive Officer since May 2020. He was elected as a director of AAON since 2004,in 2015, and currently serves in the class of directors whose terms will expire at the 20202021 Annual Meeting. Mr. Fields has been involved in the HVAC industry for more than 35 years. From 1983 to 2012, Mr. Fields was an HVAC equipment sales representative at (and, from 2002 to 2012, a member of the ownership group of) Texas AirSystems, the largest independent HVAC equipment and solutions provider in the state of Texas, with locations in Dallas, Fort Worth, Houston, Austin and San Antonio. Mr. Fields has been significantly involved with the Fort Worth, Texas Chapter of ASHRAE (the American Society of Heating, Refrigerating and Air-Conditioning Engineers), having served as Chairman of various ASHRAE committees and ultimately serving as President of the Society. Mr. Fields is currently an owner and President of GKR Partners LTD, an HVAC business development consulting firm, which has provided business development advice and consultation to the Company and its sales representatives from 2013 to 2016. Mr. Fields also serves as the President and Chief Executive Officer of AAON-Oklahoma and Chief Executive Officer of AAON Coil Products, Inc.
Mr. Fields' extensive experience in the HVAC industry provides the Board with valuable insight and knowledge on HVAC markets, including market trends. Mr. Fields' lengthy experience at a large independent HVAC equipment provider also allows him to provide the Board guidance on the Company's sales and marketing activities. In addition, Mr. Fields' detailed knowledge of the Company's product lines (as well as the product lines of the Company's competitors) enables him to provide the Board with unique
insight into the Company's strengths and strategic opportunities to improve its position in the marketplace.
*Angela E. Kouplen was elected for an initial two-year term as a director of AAON in 2016, and currently serves in the class of directors whose terms will expire at the 2021 Annual Meeting of stockholders. He is ChairmanShe serves as a member of our Audit Committee and our Compensation Committee. Ms. Kouplen has over 20 years of experience at multiple energy companies, with an emphasis on information technology (“IT”), contract management, sourcing/vendor relations, human resource management, strategy and governance. From 1997 through 2007, Ms. Kouplen worked at CITGO Petroleum, a memberpetroleum refining, marketing and transportation company, in various IT related positions, including Manager - E-Business Strategy and Alliance, as well as Manager - Third Party Applications and Applications Development. From 2007 through 2010, Ms. Kouplen served Williams Companies, a Tulsa based publicly traded energy company, in the position of our Governance Committee. Mr. Short was employed by PricewaterhouseCoopers (formerly Coopers & Lybrand) for 29 yearsManager - Sourcing Management Office. From 2010 through 2011, Ms. Kouplen served Williams Companies as Manager - IT Strategy and retired as the managing partnerGovernance.
In 2012, Ms. Kouplen transitioned from Williams Companies to WPX Energy, a Tulsa based stand-alone publicly traded energy company previously part of the Williams Companies. Following the move to WPX Energy, from 2012 through 2014, Ms. Kouplen served as Director - Talent Acquisition and Leadership, from 2015 to 2016 she served as Vice President - Information Technology, from 2016 to November 2018, she served as Vice President of Administration and Chief Information Officer and from November 2018 to present serves as Senior Vice President of Administration and Chief Information Officer. Ms. Kouplen holds a bachelor’s degree in Management from Oklahoma practice (TulsaState University and Oklahoma City)an M.B.A from the University of the firm in June 2001. Mr. Short currently serves on the board of directors of T.D. Williamson, Inc., a worldwide manufacturing and oilfield services company and previously served on the board of directors of a public company which is engaged in the non-toxic waste collection business.Tulsa.
Mr. Short’sMs. Kouplen’s extensive backgroundexperience in public accountingIT related positions provides the Board with an individual well-versedvaluable insight and enhanced knowledge on IT matters, which are increasingly vital to the Company’s operations and success. Additionally, Ms. Kouplen brings to the board experience in accountingsourcing/vendor relations and financial matters,human resources; two areas which the Board views as vital to the future growth and hisprofitability of the Company. Ms. Kouplen's diverse and lengthy experience servingin senior management and executive level positions at large publicly traded companies allows her to provide the Board guidance on the boardsCompany’s IT practices, human resources programs and sourcing/vendor relations activities, while also giving her the ability to compare such practices against those of other (publiclypublicly traded companies, all of which strengthen the effectiveness and privately held) companies offers additional insight tobroaden the Board in both financial and risk assessment matters.skill set of our Board.
Paul K. (“Ken”) Lackey, Jr., was elected as a director of AAON in 2007, and currently serves in the class of directors whose terms will expire at the 20192022 annual meeting of stockholders. He is ChairmanChair of our Governance Committee, and a member of our Audit Committee.Committee and currently serves as our Lead Independent Director. Between April 2002 and October 2005 Mr. Lackey served as CEO and President of The NORDAM Group, a privately held company in Tulsa, Oklahoma involved in the aerospace industry. Between October 2005 and December 2008 Mr. Lackey served as the Chairman and CEO of The NORDAM Group. Between January 2009 and December 2011 Mr. Lackey served as the Executive Chairman of the Board of The NORDAM Group. Since January 2012 Mr. Lackey has served as the Chairman of the Board of The NORDAM Group. From 2001 to 2016, Mr. Lackey served on the board of directors of Matrix Service Company, a public company involved in the construction and energy services industry, and currently servesfrom 2009 to 2018, served on the board of directors as Chairman of St. John Health System, a healthcare system in northeastern Oklahoma and southern Kansas.
Mr. Lackey’s experience in serving as the CEO of a manufacturing company provides not only additional knowledge and insight in production and manufacturing processes in general, but also brings to the Board an individual who can provide guidance on management and operational systems in a manufacturing environment such as ours. Mr. Lackey’s prior extensive service on the board of another public company also provides him with the ability to compare and assess the differences in board operations and functions, which allows him to provide guidance on strengthening the practices of our
Board.
A.H. (“Chip”) McElroy IICaron A. Lawhorn was elected as a director of AAON in 2007,January 2019, and currently serves in the class of directors whose terms will expire at the 2019 annual meeting of stockholders. He2023 Annual Meeting. She is Chairmana certified public accountant and serves as Chair of our CompensationAudit Committee and serves as a member of our Governance Committee. Since 1997 Mr. McElroyMs. Lawhorn has over 35 years of experience in various accounting, finance, operational and executive positions. Ms. Lawhorn currently serves as Senior Vice President and Chief Financial Officer of ONE Gas, Inc. (a position she has held since March 1, 2019), and in such role is responsible for finance, accounting, treasury functions and investor relations. Prior to her current role, she served as Senior Vice President, Commercial, a position she held from ONE Gas’s separation from ONEOK, Inc. in January, 2014. Prior to ONE Gas’s separation from ONEOK, Ms. Lawhorn served in the same role at ONEOK. Prior to assuming the role of Senior Vice President, Commercial for ONEOK, Ms. Lawhorn was the President of ONEOK’s natural gas distribution segment. From July 2009 to March 2011, she served as Senior Vice President, Corporate Planning and Development of ONEOK and ONEOK Partners, responsible for business development, strategic and long-range planning and capital investment. Ms. Lawhorn became Senior Vice President and CEOChief Accounting Officer of McElroy Manufacturing, Inc.,ONEOK in 2007, adding responsibility for ONEOK Partners in 2008. Prior to that, she was Senior Vice President of Financial Services and Treasurer of ONEOK. Ms. Lawhorn joined ONEOK in 1998, after serving as a privately held manufacturing concern basedSenior Manager at KPMG and Chief Financial Officer of Emergency Medical Services Authority in Tulsa, Oklahoma. Since 2002, Mr. McElroy has also served as Chairman of Southern Specialties Co., a privately held specialty sheet metal manufacturer. Since 2016, Mr. McElroy has served on the board of directors of Pryer Aerospace, a privately held Tulsa, Oklahoma based aerospace structural componentTulsa.
Ms. Lawhorn’s extensive background in various accounting, finance, operational and sheet metal manufacturer, and also since 2016 has served on the Advisory Board of HydroHoist Marine Group, a privately held Claremore, Oklahoma based boat lift manufacturer. Since 2017, Mr. McElroy has served on the board of directors of St. John Health System, a healthcare system in northeastern Oklahoma and Southern Kansas.
Mr. McElroy’s extensive experience in managing a privately held manufacturing company brings toexecutive positions provides the Board substantial knowledgewith significant accounting and financial expertise and assists the Board’s ongoing efforts to advance the Company’s accounting and corporate governance practices. Ms. Lawhorn’s public company experience also allows her to compare our practices against those of operationalother public companies and budgetary efficiencies, as well as technology-related applications which benefit the Company's general manufacturing processes.provide input and guidance on strengthening our practices and procedures.
Stephen O. (“Steve”) LeClair was elected as a director of AAON in 2017.2017 and currently serves in the class of directors whose terms will expire at the 2023 Annual Meeting. He is a member of our Compensation Committee and Audit Committee. Mr. LeClair has over 25 years of experience in various executive, manufacturing, finance, sales and operational positions. Mr. LeClair currently serves as Chief Executive Officer of Core & Main (formerly HD Supply Waterworks) (a position he has held since August 2017), and in such role is responsible for leading the nation’s largest distributor of water, sewer, storm and fire protection products. Prior to his current role, he served as President of HD Supply Waterworks from December 2011 to August 2017, Chief Operating Officer of HD Supply Waterworks from 2008 to 2011, and President of HD Supply Lumber and Building Materials from April 2007 until its divestiture to ProBuild Holdings in 2008. Mr. LeClair joined HD Supply in 2005 as Senior Director of Operations. Prior to joining HD Supply, Mr. LeClair was a Senior Vice President at General Electric (GE) Capital Equipment Services from 2002 to 2006, and from 1992 to 2002 held various roles at GE Appliances and Power Generation in distribution, manufacturing and sales. Mr. LeClair is a graduate of GE Power Generation’s Manufacturing Management Program. He iswas previously a member of the Saint Louis University’s International Business School Advisory Board. Mr. LeClair holds a bachelor’s degree in Mechanical Engineering from Union College and an M.B.A. degree from the University of Louisville.
Mr. LeClair’s extensive experience in operations, distribution, manufacturing and sales at two large public companies will bring to the Board strategic and operational expertise that will provide valuable insight to the Board across several phases of AAON’s business. Mr. LeClair’s public company experience will also allowallows him to compare and assess the differences in our operations and functions against other publicly traded companies, which will enableenables him to provide input and guidance on strengthening the practices of AAON.
*A.H. (“Chip”) McElroy IIGary D. Fields has served as President of AAON since November 2016, was elected as a director of AAON in 2015,2007, and currently serves in the class of directors whose terms will expire at the 20182022 annual meeting. Mr. Fields has been involved in the HVAC industry for more than 35 years. From 1983 to 2012, Mr. Fields was an HVAC equipment sales representative at (and, from 2002 to 2012, a membermeeting of the ownership group of) Texas AirSystems, the largest independent HVAC equipmentstockholders. He is Chair of our Compensation Committee and solutions provider in the state of Texas, with locations in Dallas, Fort Worth, Houston, Austin and San Antonio. Mr. Fields has been significantly involved with the Fort Worth, Texas Chapter of ASHRAE (the American Society of Heating, Refrigerating and Air-Conditioning Engineers), having served as Chairman of various ASHRAE committees and ultimately serving as President. Mr. Fields is currently an owner and President of GKR Partners LTD, an HVAC business development consulting firm, which has provided business development advice and consultation to the Company and its sales representatives from 2013 to 2016.
Mr. Field’s extensive experience in the HVAC industry provides the Board with valuable insight and knowledge on HVAC markets, including market trends. Mr. Field's lengthy experience at a large independent HVAC equipment provider also allows him to provide the Board guidance on the Company's sales and marketing activities. In addition, Mr. Fields' detailed knowledge of the Company's product lines (as well as the product lines of the Company's competitors) enables him to provide the Board with unique insight into the Company's strengths and strategic opportunities to improve its position in the marketplace.
*Angela E. Kouplen was elected for an initial two-year term as a director of AAON in 2016, and currently serves in the class of directors whose terms will expire at the 2018 annual meeting. She serves as a member of our Audit Committee and our CompensationGovernance Committee. Ms. Kouplen has over 20 years of experience at multiple energy companies, with an emphasis on information technology (“IT”), contract management, sourcing/vendor relations, human resource management, strategy and governance. FromSince 1997 through 2007, Ms. Kouplen worked at CITGO Petroleum, a petroleum refining, marketing and transportation company, in various IT related positions, including Manager - E-Business Strategy and Alliance, as well as Manager - Third Party Applications and Applications Development. From 2007 through 2010, Ms. Kouplen served Williams Companies, a Tulsa based publicly traded energy company, in the position of Manager - Sourcing Management Office. From 2010 through 2011, Ms. Kouplen served Williams Companies as Manager - IT Strategy and Governance.Mr.
8
In 2012, Ms. Kouplen transitioned from Williams Companies to WPX Energy, a Tulsa based stand-alone publicly traded energy company previously part of the Williams Companies. Following the move to WPX Energy, from 2012 through 2014, Ms. Kouplen
McElroy has served as Director - Talent AcquisitionPresident, CEO and Leadership, from 2015 to 2016 sheChairman of McElroy Manufacturing, Inc., a privately held manufacturing company based in Tulsa, Oklahoma. Since 2002, Mr. McElroy has also served as Vice President - Information Technology,Chairman of Southern Specialties Co., a privately held specialty sheet metal manufacturer. Since 2016, Mr. McElroy has served on the board of directors of Pryer Aerospace, a privately held Tulsa, Oklahoma based aerospace structural component and sheet metal manufacturer, and from 2016 to presentJune 2019, served on the Advisory Board of HydroHoist Marine Group, a privately held Claremore, Oklahoma based boat lift manufacturer. Since 2017, Mr. McElroy has served as Vice Presidenta member on the local advisory board of Administrationdirectors of Ascension St. John Health System, a healthcare system in northeastern Oklahoma and Chief Information Officer. Ms. Kouplen holds a bachelor’s degree in Management from Oklahoma State University and an M.B.A from the University of Tulsa. Southern Kansas.
Ms. Kouplen’sMr. McElroy’s extensive experience in IT related positions provides the Board with valuable insight and enhanced knowledge on IT matters, which are increasingly vital to the Company’s operations and success. Additionally, Ms. Kouplenmanaging a privately held manufacturing company brings to the board experience in sourcing/vendor relationsBoard substantial knowledge of operational and human resources; two areasbudgetary efficiencies, as well as technology-related applications which benefit the Board views as vital to the future growth and profitability of the Company. Ms. Kouplen's diverse and lengthy experience in senior management and executive level positions at large publicly traded companies allows her to provide the Board guidance on the Company’s IT practices, human resources programs and sourcing/vendor relations activities, while also giving her the ability to compare such practices against those of other publicly traded companies, all of which will strengthen the effectiveness and broaden the skill set of our Board.Company's general manufacturing processes.
Executive Officers
In addition to Norman H. Asbjornson and Gary D. Fields (who are both directors and executive officers of the Company, and whose biographical information may be found in the section above entitled “Directors”), the named executive officers of the Company are:
|
| | | | | | | |
Name | Age | Current Position |
| | |
Scott M. Asbjornson | 4952 | Vice President, Finance and Chief Financial Officer |
Mikel D. CrewsRebecca A. Thompson | 6042 | Chief Accounting Officer and Treasurer |
Stephen E. Wakefield | 44 | Vice President, Operations |
Sam J. Neale | 41 | Vice PresidentChief Operating Officer |
Scott M. Asbjornson, age 49,52, Vice President, Finance and CFO,Chief Financial Officer, joined the Company in 1990 and is the son of the Company’s CEO,founder and Executive Chairman, Norman H. Asbjornson. Mr. Scott Asbjornson has held various positions with the Company and AAON Coil Products, Inc., including Vice President (2007-2010) and President (2010-2012) of AAON Coil Products, Inc. He also serves as Vice President, Finance and CFO of AAON-Oklahoma. ScottAAON-Oklahoma and AAON Coil Products. Mr. Asbjornson also has a MastersMaster's in Business Administration from the University of Tulsa.
Mikel D. CrewsRebecca A. Thompson, age 60 , Vice President, Operations,42, Chief Accounting Officer and Treasurer, joined the Company at its inceptionas Chief Accounting Officer in 19892012 and was promoted to his current positionassumed the additional role of Treasurer in February 2017. From 2015 to February 2017, Mr. CrewsShe also serves as Chief Accounting Officer and Treasurer of AAON-Oklahoma and AAON Coil Products. Ms. Thompson previously served as a Senior Manager at Grant Thornton, LLP where she had 11 years of experience in the Company's Directorassurance division. Rebecca has a Bachelor's of MaterialScience in Accounting and Operations. Prior to that served as ManagerMaster's of Operations since 1991.Information Systems and Accounting from the University of Tulsa. Ms. Thompson is also a licensed certified public accountant.
Sam J. Neale¹Stephen E. Wakefield, age 41,44, Vice President hasand Chief Operating Officer, joined the Company in 1999. He most recently served as Vice President of Engineering until May 2020, and prior to that held several engineering roles, including Director of Design and Engineering Operations from 2017 to 2018, Senior Manager of Research and Development from 2015 to 2017, and Design Engineering Manager from 2005 to 2015. Mr. Wakefield also serves as Chief Operating Officer of AAON-Oklahoma and AAON Coil Products Inc.,Products. Mr. Wakefield has extensive knowledge and experience with all aspects of AAON operations and engineering and product design processes. Mr. Wakefield has a subsidiaryBachelor's of the Company, since 2012. He previously served as the Marketing Manager for the CompanyScience in Mechanical Engineering Technology from 2005 until 2012. He is a professionally licensed mechanical engineer with a Masters of Business Administration degree and a Masters degree in Management.Oklahoma State University.
BOARD, COMMITTEE MATTERS AND CORPORATE GOVERNANCE
Leadership Structure of the Board
The business of AAON is managed under the direction of our Board of Directors (“Board”). In accordance with our Bylaws, effective May 2020, we do not have a “Chairmanan Executive Chairman of the Board”; rather, the Chief Executive OfficerBoard, who presides as “Chairman”Chairman at all meetings of the Board and stockholders. Our Board has also chosen to elect a lead independent director to perform the duties and responsibilities as the Board may determine.
The Board has determined that our current Board structure, having the Chief Executive Officer alsoChairman of the Board serve as the presiding officer at all Board and stockholder meetings, and having a lead independent director, is currently the most appropriate leadership structure for the Company and its stockholders. This fosters clear accountability, effective decision-making, alignment with corporate strategy, direct oversight of management, full engagement of the remaining directors and continuity of leadership. AsHaving a lead independent director demonstrates the officer ultimately responsible for the day-to-day operationBoard's recognition of the Companyimportance of independent leadership and for executionidentifies the individual, appointed by and from the independent directors, selected to act as the leader of its strategy,the independent directors and helps ensure appropriate discussions take place, in an open and forthright manner, at the Board believes that the Chief Executive Officer is the director best qualified to act in the capacity as “Chairman” of the Board and to lead Board discussions regarding the performance of the Company. Welevel. Our Bylaws do not require the person filling the functionposition of “ChairmanChairman of the Board”Board (whether as Executive Chairman or Non-Executive Chairman) to be an independent director.
¹ On March 12, 2018, Mr. Neale notifieddirector, but we do require our lead independent director to qualify as an independent director under applicable securities laws, rules or regulations, and applicable stock exchange requirements or guidelines. The Board considers and reviews its leadership structure annually by the independent directors in connection with its self-evaluation process. The Board believes its current leadership structure is reasonable, appropriate and in the best interests of the Company of his resignation effective March 23, 2018, as previously reported by the Company on Form 8-K filed with the SEC on March 16, 2018.
and its stockholders.
The Board’s Role in Risk Oversight
The Board has ultimate responsibility for oversight of our risk management processes. The Board discharges this oversight responsibility through regular reports received from and discussions with senior management on areas of material risk exposure to the Company. These reports and Board discussions include, among other things, operational, financial, legal, regulatory and strategic risks. Additionally, our risk management processes are intended to identify, manage and control risks so that they are appropriate considering our size, operations and business objectives. The full Board (or the appropriate committee in the case of risks in areas for which responsibility has been delegated to a particular committee) engages with the appropriate members of senior management to enable its members to understand and provide input to and oversight of our risk identification, risk management and risk mitigation strategies. In addition, each of our Board committees considers the risks within its areas of responsibility. For example, the Audit Committee reviews risks related to financial reporting; discusses material violations, if any, of Company governance, ethics and compliance policies brought to its attention; considers the Company’s annual audit risk assessment which identifies internal control risks and drives the internal and external audit plan for the ensuing year; and considers the impact of risk on our financial position and the adequacy of our risk-related internal controls. The Compensation Committee reviews compensation and human resource risks. This enables the Board to coordinate risk oversight, particularly with respect to interrelated or cumulative risks that may involve multiple areas for which more than one committee has responsibility. The Board or applicable committee also has authority to engage external advisors as necessary.
The Board met five times during 2017, and each director participated in 75% or more of the total number of meetings of the Board.
Actions taken by the Board outside of Board meetings wereare consented to in writing by a memorandum of action in lieu of a meeting, to which all incumbent directors subscribed.subscribe. Directors meet their responsibilities not only by attending Board and committee meetings but also through communication with members of management on matters affecting us.
A description of the fees paid to the directors and members of the Audit Committee, Compensation Committee and Governance Committee can be found under “Executive Compensation - Director Compensation”, herein.
Communicating with the Board
Stockholders may communicate with the Board, including the non-management directors, by sending a letter to the Board of Directors of AAON, Inc., c/o Corporate Secretary, 2425 South Yukon, Tulsa, Oklahoma 74107. The Corporate Secretary has the authority to disregard any inappropriate communications. If deemed an appropriate communication, the Corporate Secretary will submit the correspondence to the Board or to any specific director to whom the correspondence is directed.
Board Meetings and Annual Meeting Attendance
Our directors are expected to attend Board meetings, meetings of Board committees on which they serve and the Annual Meeting of Stockholders. The Board met five times during 2020, and each director participated in 75% or more of the total number of meetings of the Board. We encourage all of our directors to attend AAON’s annual meeting of stockholders and all current Board members who were in office at such time attended the 20172020 annual meeting.
Executive Sessions
Our Board and Board committees regularly conduct executive sessions of independent directors. Our lead independent director presides over each executive session of the independent directors and the committee chairs preside over executive sessions of each of their respective committees.
Board Committee Structure
Currently, the Board has a standing Audit Committee, Compensation Committee and Governance Committee to assist the Board in carrying out its functions. The Board has determined that each of the Chairmen, as well as all committee members are independent under applicable NASDAQ and SEC rules for committee memberships. The members of the committees are shown in the table below, followed by a brief description of each committee.
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Director | | Audit Committee | Compensation Committee | Governance Committee |
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Angela E. Kouplen | | Member | Member | -- |
Paul K. Lackey, Jr. | | Member | -- | ChairmanChair |
Caron A. Lawhorn | | Chair | -- | Member |
Stephen O. LeClair | | Member | Member | -- |
A.H. McElroy II | | -- | Chairman | Member |
Jack E. Short | | Chairman | --Chair | Member |
Audit Committee
The Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices. Among other things, the Audit Committee is responsible for: selecting and retaining our independent public accountants; preapproving the engagement of the independent accountants for all audit-related services and permissible, non-audit related services; reviewing in advance the scope and focus of the annual audit; and reviewing and discussing with management and the auditors our financial reports, the audited financial statements, the auditor's report, the management letter and the quality and adequacy of our internal controls. The Board has determined that the ChairmanChair and the other Audit Committee members are independent under applicable NASDAQ and SEC rules for Audit Committee memberships. The Audit Committee is governed by a written charter, a copy of which is available on our website, at www.aaon.com. The “Audit Committee
Report” for year 20162020 is set forth below.
The Audit Committee met a total number of fourfive times during 20172020 and the ChairmanChair and each committee member participated in 75% or more of the total number of Audit Committee meetings.
The Board has determined that Mr. ShortMs. Lawhorn qualifies as an “audit committee financial expert” as defined by applicable SEC rules and that each member of the Audit Committee meets the additional criteria for independence of audit committee members set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 5605(c) of the NASDAQ Stock Market Listing Standards.
Compensation Committee
The responsibilities of the Compensation Committee, as set forth in its charter, include the direct responsibility and authority to review and approve our goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers, to evaluate the performance of such officers in accordance with the policies and principles established by the Compensation Committee and to determine and approve, either as a Committee, or (as directed by the Board) with the other “independent” Board members (as defined by the NASDAQ listing standards), the compensation level of the Chief Executive Officer and the other executive officers. The Compensation Committee is composed of the three non-employee directors, named in the table above, each of whom is “independent” as defined by applicable NASDAQ and SEC rules for committee memberships. The Compensation Committee is governed by a written charter, a copy of which is available on our website, at www.aaon.com. In accordance with its charter, our Compensation Committee has the sole authority to retain and terminate its compensation consultant and to review its compensation consultant's independence on an annual basis.
The Compensation Committee met a total of threetwelve times during 20172020 and the ChairmanChair and each committee member participated in 75% or more of the total number of Compensation Committee meetings.
Governance Committee
The responsibilities of the Governance Committee include proposing to the Board a slate of nominees for election by the stockholders at the Annual Meeting, and maintaining a list of prospective director candidates in the event of the resignation, death, removal or retirement of directors or a change in the Board composition requirements. The Committee is also charged with reviewing with the Board the desired experience, mix of skills and other qualities to assure appropriate Board composition. The Board has determined that the ChairmanChair and all Governance Committee members are independent under applicable NASDAQ and SEC rules for committee memberships.
The Governance Committee met a total of four times during 20172020 and the ChairmanChair and each committee member participated in 75% or more of the total number of Governance Committee meetings.
Our Bylaws also provide that a stockholder may nominate a director for election at an annual meeting if written notice is given to us not less than 6090 and not more than 90120 days in advance of the anniversary date of the immediately preceding annual meeting.
If and when new vacancies occur in the future, the Board will consider director nominees recommended by stockholders, in accordance with our Bylaws. The Board does not have a formal policy regarding the consideration of, procedures to be followed by, minimum qualifications of or process for identifying or evaluating nominees recommended by stockholders.
Among the criteria developed by the Governance Committee for qualification for director nominees as well as director retention, a candidate must have demonstrated accomplishment in his or her chosen field, character and personal integrity, and the ability to devote sufficient time to carry out the duties of a director. The Governance Committee considers whether the candidate is independent under the standards described below under “Director Independence.” In addition, the Governance Committee considers all information relevant in their business judgment to the decision of whether to nominate a particular candidate, taking into account the then-current composition of the Board and assessment of the Board’s collective requirements. These factors may include: a candidate’s age, professional and educational background, reputation, industry knowledge and business experience and relevance to the Company and the Board (including the candidate’s understanding of markets, technologies, financial matters and international operations); whether the candidate will complement or contribute to the mix of talents, skills and other characteristics that are needed to maintain the Board’s effectiveness; and the candidate’s ability to fulfill responsibilities as a director and as a member of one or more of our standing Board committees. Although the Board does not have a formal diversity policy for Board membership, the Governance Committee considers whether a director nominee contributes or will contribute to the Board in a way that can enhance the perspective and experience of the Board as a whole through diversity in gender, ethnicity, geography and professional experience.
Nomination of a candidate is not based solely on the factors noted above. When current Board members are considered for nomination for re-election, the Governance Committee also takes into consideration their prior Board contributions, performance and meeting attendance records. The Governance Committee does not assign specific weights to particular criteria, and no particular criterion is a prerequisite for Board membership. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide an appropriate mix of experience, knowledge and abilities to allow the Board to fulfill its responsibilities. The effectiveness of the Board’s skills, expertise and background is also considered as part of each Board and committee annual self-assessment evaluation process conducted at the direction of the Governance Committee.
Code of Ethics
We have adopted a codeCode of ethicsBusiness Conduct and Ethics that applies to our principal executive officer, principal financial officer and principal accounting officer or persons performing similar functions, as well as our other employees and directors. Our codeCode of ethicsBusiness Conduct and Ethics can be found on our website at www.aaon.com.www.aaon.com. We will also provide any person without charge, upon request, a copy of such codeCode of ethics.Business Conduct and Ethics. Requests may be directed to AAON, 2425 South Yukon Avenue, Tulsa, Oklahoma 74107, attention Scott Asbjornson, or by calling (918) 382-6242.
Transactions with Related Persons
The Company sells unitsproducts to Fields Mechanical Systems, which is owned by the brother of our President and CEO, Gary Fields. This entity is also one of the Company's independent sales representatives and as such, the Company makes payments to the entity for third party products, which are reflected in our financial statement as amounts Due to Representatives. In 2017,2020, the Company had sales to Fields Mechanical Systems for $1.6$3.5 million and made payments to Fields Mechanical Systems of $0.4$0.2 million. All transactions are made on standard Company terms and conditions.
The Company purchases signs and other items from Mid-State Signs, which is owned by our Executive Chairman, Norman Asbjornson. In 2020, the Company had purchases from Mid-State Signs of $0.1 million. All transactions are made on standard Company terms and conditions.
Our Code of Business Conduct and Ethics guides the Board in its actions and deliberations with respect to related party transactions. Under the Code, conflicts of interest, including any involving the directors or any Named Executive Officers, are prohibited except under any guidelines approved by the Board. Only the Board may waive a provision of the Code of Business Conduct and Ethics for a director or a Named Executive Officer, and only then in compliance with all applicable laws, rules and regulations.
Policy Against Hedging Stock
Our Insider Trading Policy (which was adopted by the Board in November 2014) prohibits our directors, officers and other employees, and their designees, from engaging in short sales or from hedging transactions of any nature that are designed to hedge or offset a decrease in market value of such person’s ownership of the Company's equity securities. Our Insider Trading Policy also prohibits our directors, officers and other employees, and their designees, from purchasing financial instruments or engaging in other problematic transactions involving the Company’s equity securities, including, puts, calls, collars, forward contracts or other derivative securities concerning the Company's equity securities. We prohibit such conduct since purchasing such financial instruments or engaging in such transactions would result in the individual no longer being exposed to the full risks of ownership of the Company’s equity securities, which may weaken the alignment of such individual with the objectives of the Company’s stockholders. Additionally, our directors, officers and other employees may not hold their Company equity securities in a margin account.
Whistleblower Procedures
The Audit Committee has established procedures for the submission of complaints regarding accounting, internal accounting controls, audit and other matters.These procedures include processes for the confidential and anonymous submission of concerns of any such matters by our employees.Our Code of Business Conduct and Ethics prohibits retaliation against employees who report suspected violations of the Code of Business Conduct and Ethics or other misconduct.
Sustainability
Our Company is widely recognized as a leader in the design, manufacture and sale of energy efficient HVAC products.Our product offerings include some of the most energy efficient products in our industry.We have a proud history of challenging conventional wisdom and forging our own path through a never-ending commitment to innovation and continuous improvement of our products and manufacturing methodologies.These underlying principles guide our commitment to environmental stewardship, sustainability and social responsibility.We endeavor to utilize company resources in a manner that creates long-term value for our stockholders while minimizing our impact on natural resources and the environment.
We also strive to add value and support to the communities in which our employees live and work, through financial contributions, employee volunteerism and donations of HVAC equipment to charitable and other civic organizations.
We endeavor to attract, employ and retain a well-rounded, diverse team of individuals.Additionally, we place priorities on developing and maintaining an inclusive and safe workplace and strive to emphasize and support opportunities for our team members to engage in professional and personal development.
Our commitment to these practices runs deep and not only improves the wellbeing of our workforce, but also contributes to the communities in which we operate and provides the Company the best opportunity to continue to deliver value to our stockholders, team members and all other stakeholders.
Director Independence
The Board has adopted director independence standards that meet and/or exceed listing standards set by NASDAQ. NASDAQ has set forth six applicable tests and requires that a director who fails any of the tests be deemed not independent. The Board has affirmatively determined that Ms. Kouplen, Ms. Lawhorn and Messrs. Lackey, LeClair McElroy and ShortMcElroy are independent under the Company's guidelines and independence standards of NASDAQ and the SEC. Messrs. Asbjornson and Fields do not qualify as independent under the standards set forth below.
Our director independence standards are as follows:
It is the policy of the Board that a majority of the members of the Board consist of directors independent of AAON and our management. For a director to be deemed “independent,” the Board shallmust affirmatively determine that (apart from his or her status as a director) the director has no material relationship with AAON or its affiliates or any member of the senior management of AAON or his or her affiliates. In making this determination, the Board applies, at a minimum and in addition to any other standards for independence established under applicable statutes and regulations as outlined by the NASDAQ listing standards, the following standards, which it may amend or supplement from time to time:
▪A director who is, or has been within the last three years, one of our employees, or whose immediate family member is, or has been within the last three years a Named Executive Officer, cannot be deemed independent. Employment as an interim Chairman or Chief Executive Officer will not disqualify a director from being considered independent following that employment.
▪A director who has received, or who has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from us, other than director and committee fees and benefits under a tax-qualified retirement plan, or non-discretionary compensation for prior service (provided such compensation is not contingent in any way on continued service), cannot be deemed independent. Compensation received by a director for former service as an interim Chairman or Chief Executive Officer and compensation received by an immediate family member for service as a non-executive employee will not be considered in determining independence under this test.
▪A director who (A) is, or whose immediate family member is, a current partner of a firm that is our external auditor; (B) is a current employee of such a firm; or (C) was, or whose immediate family member was, within the last three years (but is no longer) a partner or employee of such a firm and personally worked on our audit within that time cannot be deemed independent.
▪A director who is, or whose immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of our present Named Executive Officers at the time serves or has served on that company’s compensation committee cannot be deemed independent.
▪A director who is a current employee or general partner, or whose immediate family member is a current executive officer or general partner, of an entity that has made payments to, or received payments from us for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $200,000 or 5% of such other entity’s consolidated gross revenues, other than payments arising solely from investments in AAON’s securities or payments under non-discretionary charitable contribution matching programs, cannot be deemed independent.
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▪ | A director who is, or has been within the last three years, one of our employees, or whose immediate family member is, or has been within the last three years a Named Executive Officer, cannot be deemed independent. Employment as an interim Chairman or Chief Executive Officer will not disqualify a director from being considered independent following that employment. |
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▪ | A director who has received, or who has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from us, other than director and committee fees and benefits under a tax-qualified retirement plan, or non-discretionary compensation for prior service (provided such compensation is not contingent in any way on continued service), cannot be deemed independent. Compensation received by a director for former service as an interim Chairman or Chief Executive Officer and compensation received by an immediate family member for service as a non-executive employee will not be considered in determining independence under this test. |
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▪ | A director who (A) is, or whose immediate family member is, a current partner of a firm that is our external auditor; (B) is a current employee of such a firm; or (C) was, or whose immediate family member was, within the last three years (but is no longer) a partner or employee of such a firm and personally worked on our audit within that time cannot be deemed independent. |
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▪ | A director who is, or whose immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of our present Named Executive Officers at the time serves or has served on that company’s compensation committee cannot be deemed independent. |
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▪ | A director who is a current employee or general partner, or whose immediate family member is a current executive officer or general partner, of an entity that has made payments to, or received payments from us for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $200,000 or 5% of such other entity’s consolidated gross revenues, other than payments arising solely from investments in AAON’s securities or payments under non-discretionary charitable contribution matching programs, cannot be deemed independent. |
For purposes of the independence standards set forth above, the terms:
▪“affiliate” means any consolidated subsidiary of AAON and any other company or entity that controls, is controlled by or is under common control with AAON;
▪“executive officer” means an “officer” within the meaning of Rule 16a-1(f) under the Exchange Act, as amended; and
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▪ | “affiliate” means any consolidated subsidiary of AAON and any other company or entity that controls, is controlled by or is under common control with AAON; |
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▪ | “executive officer” means an “officer” within the meaning of Rule 16a-1(f) under the Exchange Act, as amended; and |
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▪ | “immediate family” means spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone (other than employees) sharing a person’s home, but excluding any person who is no longer an immediate family member as a result of legal separation or divorce, death or incapacitation. |
▪“immediate family” means spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone (other than employees) sharing a person’s home, but excluding any person who is no longer an immediate family member as a result of legal separation or divorce, death or incapacitation.
In addition to the director independence standards set forth above, the Board also requires the Chairs and all other committee members to satisfy the heightened independence standards set forth under applicable NASDAQ and SEC rules for committee memberships. In connection with its assessment of the independence of the directors as set forth above, the Board also determined that our Audit Committee Chair and all other Audit Committee members meet the additional independence standards of NASDAQ and the SEC applicable to members of the Audit Committee.
The Board undertakes an annual review of the independence of all non-employee directors. In advance of the meeting at which this review occurs, each non-employee director is asked to provide the Board with full information regarding the director’s business and other relationships with us and our affiliates and with senior management and their affiliates to enable the Board to evaluate the director’s independence.
Directors have an affirmative obligation to inform the Board of any material changes in their circumstances or relationships that may impact their designation by the Board as “independent”. This obligation includes all business relationships between, on the one hand, directors or members of their immediate family, and, on the other hand, AAON and our affiliates or members of senior management and their affiliates, whether or not such business relationships are subject to any other approval requirements by us.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
TheThis compensation discussion and analysis provides information regarding our executive compensation program in 2020 for the following discussesexecutive officers of the material elements of compensation awarded to, earned byCompany (collectively, the "named executive officers" or paid to our Named Executive Officers, comprised of our principal executive and principal financial officers, and our other four most highly compensated executive officers.“NEOs”):
For the 2017 fiscal year, our Named Executive Officers were:
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Gary D. Fields | President and Chief Executive Officer | |
Norman H. Asbjornson | Chief Executive Officer |
Gary D. FieldsChairman | President |
Scott M. Asbjornson | Vice President, Finance and Chief Financial Officer | |
Mikel D. CrewsRebecca A. Thompson | Chief Accounting Officer and Treasurer | |
Stephen E. Wakefield | Vice President, Operations |
Sam J. NealeChief Operating Officer | Vice President |
Kathy I. Sheffield | Senior Vice President, Administration and Treasurer |
Robert G. Fergus | Vice President, Manufacturing |
Mr. Norman AsbjornsonGary Fields and Mr. Scott Asbjornson are Named Executive OfficersNEOs by reason of their positions as the principal executive officer ("PEO") and principal financial officer ("PFO"), respectively, of the Company during 2017.2020. Mr. Fields, Mr. CrewsNorman Asbjornson, Ms. Thompson and Mr. NealeWakefield are Named Executive OfficersNEOs as they were our three most highly compensated executive officers (other than our PEO and PFO) who were serving at the end of 2017. Ms. Sheffield2020.
Executive Summary
During 2020, our executive officers led our efforts to increase sales, execute our internal capital expenditure programs and Mr. Fergus are Named Executive Officersposition the Company to capitalize on anticipated growth. Some of the key accomplishments during 2020 include:
•Achieved record sales of $514.6 million, an increase of 9.6% from 2019;
•Achieved improvement in our gross profit to 30.3% of sales compared to 25.4% of sales for the reasonyear ended 2019;
•Improved warranty expense in 2020, extending the trend from 2019 and 2018;
•Exercised disciplined management of capital expenditures during 2020 totaling $67.8 million; and
•Neared completion of our new building in Longview, Texas, adding nearly 200,000 square feet expansion of additional manufacturing capacity.
While we continued to deliver solid sales results in 2020, several growth-related challenges negatively impacted our net income. The primary challenges faced by the Company during 2020 were:
•Employee absenteeism, mostly in June 2020, related to COVID-19; and
•Weakened demand, especially in the fourth quarter of 2020 particularly in end-markets significantly impacted by the COVID-19 pandemic.
The following outlines key features of our compensation program, in addition to typical "best practices" that they would have been included among the three most highly compensated executive officers (other than our PEO and PFO) but they each retired and were not serving in their respective capacities at the end of 2017.
we adhere to:
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What We Do | | What We Do Not Do |
Pay for Performance: Our executive compensation plan is aligned with stockholder interests by rewarding for strong financial performance and stock price appreciation. | | No Stock Option Re-Pricing: We do not permit re-pricing of equity awards without stockholder approval. |
Stock Ownership /Retention Requirements: Our directors, executive officers and certain other key employees are subject to robust stock ownership and retention requirements. | | No Tax Gross-Ups: We do not provide tax gross-ups. |
At-Will Employment: Our executive officers are employed at-will and we do not use employment agreements. | | No Hedging in Company Securities: Our directors, executive officers and other employees are prohibited from engaging in hedging transactions, short sales or derivative transactions with respect to AAON securities. |
Independent Compensation Consultant: We utilize an independent compensation consultant reporting directly to the Compensation Committee. | | Perquisites: We do not offer perquisites to our NEOs. Benefits available to our NEOs are consistent with those offered to all employees. |
Compensation Clawback: Our executive officers are subject to a compensation clawback policy (with a three-year look-back period) that requires reimbursement of any bonus or incentive compensation (as well as the cancellation of unvested, restricted or deferred equity awards) in the event of officer misconduct that was a material factor causing a restatement of the Company’s financial statements. | | |
Our executive compensation programs are determined and approved by our Compensation Committee, after consideration of recommendations by the principal executive officer, as to the other Named Executive OfficersPEO and review and consideration of information fromprovided by the Compensation Committee's independent compensation consultant. The Compensation Committee, however, uses its own judgment to ultimately make the final decisions concerning compensation paid to our Named Executive Officers.NEOs.
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What We Do | What We Do Not Do |
Independent Compensation Consultant: We utilize an independent compensation consultant.
| No Change in Control Payments: We do not provide change in control payments.
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At-Will Employment: Our executive officers are employed at-will.
| No Re-Pricing: We do not permit re-pricing of equity awards without stockholder approval.
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Stock Ownership Guidelines: Our directors, executive officers and certain other key employees are subject to robust stock ownership guidelines.
| No Golden Parachute Arrangements: We do not have any golden parachute arrangements.
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Independent Compensation Committee: Our Compensation Committee is comprised solely of independent directors.
| No Tax Gross-Ups: We do not provide tax gross-ups.
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Pay for Performance: Our executive annual cash incentive bonus plan is aligned with stockholder interests by being tied to financial performance goals established in advance by our Compensation Committee.
| No Hedging in Company Securities: Our directors, executive officers and other key employees are prohibited from engaging in hedging transactions, short sales or derivative transactions with respect to AAON securities.
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Long-Term Equity Awards: We utilize long-term equity awards in our compensation mix, which are subject to five year vesting periods for executive officers and other employee award recipients.
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None of the Named Executive OfficersNEOs are members of the Compensation Committee. The Compensation Committee has the direct responsibility and authority to review and approve our goals and objectives relative to the compensation of the Named Executive Officers,NEOs, and to determine and approve (either as a committee or with the other members of our Board who qualify as “independent” directors under applicable guidelines adopted by NASDAQ) the compensation levels of the Named Executive Officers.
NEOs. However, when making pay decisions for the NEOs, we consider input and recommendations from the Company's PEO (for individuals other than himself).
Our historical executive compensation programs have intended to achieve two objectives. The primary objective is toobjectives:
•To enhance our profitability, and thus stockholder value. The second objective is tovalue; and
•To attract, motivate, reward and retain high quality employees, including executive personnel, who contribute to our long-term success.
As described in more detail below, the material elements of our historical executive compensation program for Named Executive OfficersNEOs include a base salary, annual incentive bonuses, perquisites,equity-based compensation and Company contributions to AAON’s 401(k) plan, discretionary stock options and restricted stock awards.plan.
We believe that each element of the executive compensation program helps to achieve one or both of the compensation objectives outlined above. The table below lists each material element of our executive compensation program and the compensation objective or objectives that it is designed to achieve.
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Compensation Element | | Compensation Objectives Attempted to be Achieved |
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Base salary | | - Attract and retain qualified executives |
| | - Motivate and reward executives’ performance |
| | - Stay competitive in the marketplace |
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Bonus compensation | | - Motivate and compensate executives’ performance |
| | - Stay competitive in the marketplace |
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Perquisites and personal benefits | | Attract and retain qualified executives |
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Equity-based compensation – stock options | | - Enhance profitability of AAON and stockholder value by |
and restricted stock awards | | aligning long-term incentivesexecutives with stockholders' long-term |
| | interests |
| | - Attract and retain qualified executives |
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Retirement benefits – 401(k) and health | | Enhance profitability of AAON- Attract and stockholder valueretain qualified executives |
savings account | | by aligning long-term incentives with stockholders’ |
| | long-term interests |
As illustrated by the table above, base salary, perquisitesCompensation Philosophy
Our executive compensation program is designed to reward performance for enhanced profitability, revenue growth and retirement benefits are all primarily intendedultimately increased stockholder value. We believe in a compensation plan that fosters a culture of ownership and allows us to attract and retain qualified executives. Thesetop talent who are similarly focused on the elementscreation of long-term value. We reward our historic executive compensation program where the value of the benefit in any given year is not wholly dependent on performance. Base salaries are intended to attract and retain qualified executives as well as being linked to performance by rewarding and/or motivating executives. Base salaries are reviewed annually and take into account: experience and retention considerations; past performance; improvement in historical performance; anticipated future potential performance; and other issues specific to the individual executive. Base salaries also take into account comparable salaries of similarly situated officers of industry peers, as well as the individual responsibilities of our Named Executive Officers. In an effort to attract and retain qualified executives, we emphasize the need to provide executives with predictable benefit amountsa pay mix that reward the executive’s continued service. Some of the elements are generally paid out on a short-term or current basis, e.g., base salary and perquisites, while retirement benefits are generally paid out on a long-term basis.
There are specific elements of the historic executive compensation program that are designed to reward performance and enhance profitability and stockholder value, and, therefore, the value of these benefits is based on performance. Our annual incentive bonus plan is primarily intended to motivate and reward Named Executive Officers’ performance to achieve specific strategies and operating objectives, as well as improved financial performance. Other elements that satisfy the primary objective of executive compensation to enhance profitability and stockholder value are achieved through a combination of short-term or current basis and long-term basis. Our 2007 Long-Term Incentive Plan (“2007 LTIP”), 2016 Incentive Plan and 401(k) savings and investment plan each align performance to profitability and stockholder value over a longer term. This mix of short-term and long-term elements allows us to achieve dual goals of attracting and retaining executives, while motivating and rewarding executives to enhance profitability and stockholder value over the long-term.
The Compensation Committee’s philosophy is that the Company should continue to useemphasizes long-term compensation through stock options and restricted stock awards to align stockholder and executives’ interestsinterests. We strive to provide total compensation that aligns with the market median for NEOs and should allocate a portion of long-term compensation to the entire executive compensation package.
The Company hasutilize an “at risk” annual incentive bonus program directly tied to overallincentivize executive officers to meet Company performance. However, even under this structure, we believe that there is little or no likelihood that thisperformance goals. We maintain a compensation program will incentivize any executive officer to take actions for his or her personal enhancement tothat operates in the detriment or riskbest interests of the Company.AAON and our stockholders, rewarding NEOs based on performance.
We have, from time to time, atUnder the request and for the benefitterms of the Compensation Committee retained independent third-party executive compensation consulting companies (which provide no other services to us) to provide general compensation expertise. The Compensation Committee has previously utilized these consulting firms for a comprehensive analysis of compensation for all executive, engineering, sales, marketing, general and administrative positions. These consultants generally gather peer group information and provide the information toCharter, the Compensation Committee which is then used for proper benchmarking of our compensation programs for executives and other employees. The peer group information is utilized byauthorized to engage independent advisors, at the Company's expense, to advise the Compensation Committee to provide reference points to compare our compensation practices against thoseon any matters within the scope of other similarly situated publicly traded companies. While the peer group data helps informCommittee's duties. For 2020, the Compensation Committee in its decision making process, theretained Meridian Compensation Committee ultimately makes its determinations based on subjective criteria and reliances on its independent business judgment and experience.
In December 2015, the Compensation Committee engaged a new consultantPartners, LLC ("Meridian") to serve as an independent consultant to the Company's independent compensation advisorCommittee to provide information and objective advice regarding executive compensation. The Committee did not direct Meridian to perform an independent assessment ofits services in any particular manner or under any particular method. The Committee has the final authority to hire and terminate the compensation levels for our executive officersconsultant and non-employee directors. The Compensationthe Committee began receiving information from thisevaluates the compensation consultant in 2016 and such information is being reviewed and assessed by the Compensation Committee to help inform its recommendationsannually. Meridian does not provide any services to the Board concerning future compensation of our executive officers and non-employee directors.
In accordance with SEC and NASDAQ rules, the Compensation Committee considered the relationship that the independent compensation consulting firm has had with the Company (which is limited to matters relatedother than in its role as advisor to the services requested by the Compensation Committee), the members of the Compensation Committee, and our executive officers, andthe Committee has determined that no conflicts of interest arose fromexists as a result of the work performedengagement of Meridian.
Benchmarking and Peer Group
The Compensation Committee evaluates executive compensation by suchbenchmarking our NEOs’ target total compensation relative to comparable market data provided by our independent compensation consulting firm.consultant. Market references are provided for our NEOs, where available, from our peer group which consists of 16 publicly-traded companies in similar industries to AAON (detailed below). This group is reviewed and approved annually, with changes made as needed, considering changes to business characteristics, size, M&A, etc. Where data may be limited for certain roles, or as an additional market reference, survey data is also used and is reflective of manufacturing organizations with revenue approximately 0.5 to 2x that of AAON.
When making compensation-related decisions, the Committee considers individual and company performance, tenure, future potential, etc.The Committee generally sets target total direct compensation for our NEOs to be competitive with the Company’s peer group and other market data. The peer group used for making 2020 pay decisions is detailed below:
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2020 Peer Group |
Ameresco, Inc. | PGT Innovations, Inc. |
Armstrong World Industries, Inc. | Quanex Building Products Corporation |
CECO Environmental Corp. | Raven Industries, Inc. |
Continental Building Products | Simpson Manufacturing Co., Inc. |
CSW Industrials, Inc. | The Gorman-Rupp Company |
Gibraltar Industries, Inc. | Thermon Group Holdings, Inc. |
Insteel Industries, Inc. | Trex Company, Inc. |
The following criteria were considered in determining the members of the Company’s 2020 peer group: publicly-traded manufacturing industry companies with revenues approximately between 0.5 times and 2 times that of the Company. Based on the Committee’s 2020 peer group review, Continental Building Products was removed due to acquisition, while Encore Wire Corporation and Lydall, Inc. were added to the peer group.
Say-On-Pay
We provide our stockholders the opportunity to cast an advisory vote (currently(previously, once every three years)years, and following our 2020 Annual Meeting, on an annual basis) to approve the compensation of our Named Executive OfficersNEOs as disclosed pursuant to the SEC's compensation disclosure rules.
Proposal No. 2 in this Proxy Statement provides our stockholders an opportunity to cast an advisory vote to approve the compensation of our NEOs. The results of this advisory vote (commonly known as a "say-on-pay proposal"), while not binding on the Company, are taken into account by the Compensation Committee in its determinations regarding the key components, design and implementation of our executive compensation program.
At our 20172020 Annual Meeting of Stockholders, the ballot included our most recent say-on-pay proposal. The vote was not binding on the Company, the Board of Directors or the Compensation Committee. Of the votes cast, including abstentions, 96.3%95.85% were “FOR” the compensation of the Named Executive Officers. TheNEOs Taking into consideration these results, the Compensation Committee was cognizant of this result in its determinations to continuedetermined that the key components, design and implementation of ourCompany's executive compensation program.
The ballotpractices for our 2017 Annual Meeting of Stockholders also included an advisory vote as2020 continued to be appropriate and therefore did not make any specific changes to them in response to the frequency of future advisory2020 say-on-pay votes. Of the votes cast, including abstentions, 47.71% selected "THREE YEARS" as the frequency for future say-on-pay votes. At a meeting of the Board of Directors immediately following our 2017 Annual Meeting of Stockholders, the Board determined, in light of such advisory vote, to continue including an advisory stockholder say-on-pay proposal every three years. As a result, we currently anticipate our next say-on-pay proposal will be included on the ballot for our 2020 Annual Meeting of Stockholders.vote.
2017
2020 Executive Compensation Program Elements
The following discussion, as well as the historical information contained in the tables below, are based upon our historical and current compensation plans, as in effect in 20172020 and in the priorprevious reported years.year.
Base Salaries
Policy Against Hedging Stock
Similar
Our Insider Trading Policy (which was adopted by the Board in November 2014) prohibits our directors, officers and other employees, and their designees, from engaging in short sales or from hedging transactions of any nature that are designed to hedge or offset a decrease in market value of such person’s ownership of the Company's equity securities. Our Insider Trading Policy also prohibits our directors, officers and other employees, and their designees, from purchasing financial instruments or engaging in other problematic transactions involving the Company’s equity securities, including, puts, calls, collars, forward contracts or other derivative securities concerning the Company's equity securities. We prohibit such conduct since purchasing such financial instruments or engaging in such transactions would result in the individual no longer being exposed to the full risks of ownership of the Company’s equity securities, which may weaken the alignment of such individual with the objectives of the Company’s stockholders. Additionally, our directors, officers and other employees may not hold their Company equity securities in a margin account.
Whistleblower Procedures
The Audit Committee has established procedures for the submission of complaints regarding accounting, internal accounting controls, audit and other matters.These procedures include processes for the confidential and anonymous submission of concerns of any such matters by our employees.Our Code of Business Conduct and Ethics prohibits retaliation against employees who report suspected violations of the Code of Business Conduct and Ethics or other misconduct.
Sustainability
Our Company is widely recognized as a leader in the design, manufacture and sale of energy efficient HVAC products.Our product offerings include some of the most companiesenergy efficient products in our industry.We have a proud history of challenging conventional wisdom and forging our own path through a never-ending commitment to innovation and continuous improvement of our products and manufacturing methodologies.These underlying principles guide our commitment to environmental stewardship, sustainability and social responsibility.We endeavor to utilize company resources in a manner that creates long-term value for our stockholders while minimizing our impact on natural resources and the environment.
We also strive to add value and support to the communities in which our employees live and work, through financial contributions, employee volunteerism and donations of HVAC equipment to charitable and other civic organizations.
We endeavor to attract, employ and retain a well-rounded, diverse team of individuals.Additionally, we place priorities on developing and maintaining an inclusive and safe workplace and strive to emphasize and support opportunities for our team members to engage in professional and personal development.
Our commitment to these practices runs deep and not only improves the wellbeing of our workforce, but also contributes to the communities in which we operate and provides the Company the best opportunity to continue to deliver value to our stockholders, team members and all other stakeholders.
Director Independence
The Board has adopted director independence standards that meet and/or exceed listing standards set by NASDAQ. NASDAQ has set forth six applicable tests and requires that a director who fails any of the tests be deemed not independent. The Board has affirmatively determined that Ms. Kouplen, Ms. Lawhorn and Messrs. Lackey, LeClair and McElroy are independent under the Company's guidelines and independence standards of NASDAQ and the SEC. Messrs. Asbjornson and Fields do not qualify as independent under the standards set forth below.
Our director independence standards are as follows:
It is the policy of the Board that a majority of the members of the Board consist of directors independent of AAON and our management. For a director to be deemed “independent,” the Board must affirmatively determine that (apart from his or her status as a director) the director has no material relationship with AAON or its affiliates or any member of the senior management of AAON or his or her affiliates. In making this determination, the Board applies, at a minimum and in addition to any other standards for independence established under applicable statutes and regulations as outlined by the NASDAQ listing standards, the following standards, which it may amend or supplement from time to time:
▪A director who is, or has been within the industry,last three years, one of our policyemployees, or whose immediate family member is, to payor has been within the last three years a Named Executive Officers’ base salariesOfficer, cannot be deemed independent. Employment as an interim Chairman or Chief Executive Officer will not disqualify a director from being considered independent following that employment.
▪A director who has received, or who has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in cash. direct compensation from us, other than director and committee fees and benefits under a tax-qualified retirement plan, or non-discretionary compensation for prior service (provided such compensation is not contingent in any way on continued service), cannot be deemed independent. Compensation received by a director for former service as an interim Chairman or Chief Executive Officer and compensation received by an immediate family member for service as a non-executive employee will not be considered in determining independence under this test.
▪A significant portiondirector who (A) is, or whose immediate family member is, a current partner of a firm that is our external auditor; (B) is a current employee of such a firm; or (C) was, or whose immediate family member was, within the last three years (but is no longer) a partner or employee of such a firm and personally worked on our audit within that time cannot be deemed independent.
▪A director who is, or whose immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of our present Named Executive Officers at the time serves or has served on that company’s compensation committee cannot be deemed independent.
▪A director who is a current employee or general partner, or whose immediate family member is a current executive officer or general partner, of an entity that has made payments to, or received payments from us for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $200,000 or 5% of such other entity’s consolidated gross revenues, other than payments arising solely from investments in AAON’s securities or payments under non-discretionary charitable contribution matching programs, cannot be deemed independent.
For purposes of the independence standards set forth above, the terms:
▪“affiliate” means any consolidated subsidiary of AAON and any other company or entity that controls, is controlled by or is under common control with AAON;
▪“executive officer” means an “officer” within the meaning of Rule 16a-1(f) under the Exchange Act, as amended; and
▪“immediate family” means spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone (other than employees) sharing a person’s home, but excluding any person who is no longer an immediate family member as a result of legal separation or divorce, death or incapacitation.
In addition to the director independence standards set forth above, the Board also requires the Chairs and all other committee members to satisfy the heightened independence standards set forth under applicable NASDAQ and SEC rules for committee memberships. In connection with its assessment of the independence of the directors as set forth above, the Board also determined that our Audit Committee Chair and all other Audit Committee members meet the additional independence standards of NASDAQ and the SEC applicable to members of the Audit Committee.
The Board undertakes an annual review of the independence of all non-employee directors. In advance of the meeting at which this review occurs, each non-employee director is asked to provide the Board with full information regarding the director’s business and other relationships with us and our affiliates and with senior management and their affiliates to enable the Board to evaluate the director’s independence.
Directors have an affirmative obligation to inform the Board of any material changes in their circumstances or relationships that may impact their designation by the Board as “independent”. This obligation includes all business relationships between, on the one hand, directors or members of their immediate family, and, on the other hand, AAON and our affiliates or members of senior management and their affiliates, whether or not such business relationships are subject to any other approval requirements by us.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This compensation discussion and analysis provides information regarding our executive compensation package is through base salaries. Below is a summaryprogram in 2020 for the following executive officers of 2017 base salaries for our Named Executive Officers:the Company (collectively, the "named executive officers" or “NEOs”):
|
| | | | | |
NamedGary D. Fields | President and Chief Executive Officer | | Base Salary | |
Norman H. Asbjornson | Executive Chairman | $480,960 | |
Gary D. Fields | | $350,000 | |
Scott M. Asbjornson | Vice President, Finance and Chief Financial Officer | $246,220 | |
Mikel D. CrewsRebecca A. Thompson | Chief Accounting Officer and Treasurer | $270,556 | |
Sam NealeStephen E. Wakefield | Vice President, Chief Operating Officer | $205,000 |
Mr. Gary Fields and Mr. Scott Asbjornson are NEOs by reason of their positions as the principal executive officer ("PEO") and principal financial officer ("PFO"), respectively, of the Company during 2020. Mr. Norman Asbjornson, Ms. Thompson and Mr. Wakefield are NEOs as they were our three most highly compensated executive officers (other than our PEO and PFO) who were serving at the end of 2020.
Executive Summary
During 2020, our executive officers led our efforts to increase sales, execute our internal capital expenditure programs and position the Company to capitalize on anticipated growth. Some of the key accomplishments during 2020 include:
•Achieved record sales of $514.6 million, an increase of 9.6% from 2019;
•Achieved improvement in our gross profit to 30.3% of sales compared to 25.4% of sales for the year ended 2019;
•Improved warranty expense in 2020, extending the trend from 2019 and 2018;
•Exercised disciplined management of capital expenditures during 2020 totaling $67.8 million; and
•Neared completion of our new building in Longview, Texas, adding nearly 200,000 square feet expansion of additional manufacturing capacity.
While we continued to deliver solid sales results in 2020, several growth-related challenges negatively impacted our net income. The primary challenges faced by the Company during 2020 were:
•Employee absenteeism, mostly in June 2020, related to COVID-19; and
•Weakened demand, especially in the fourth quarter of 2020 particularly in end-markets significantly impacted by the COVID-19 pandemic.
The following outlines key features of our compensation program, in addition to typical "best practices" that we adhere to:
| | | | | | | | |
Kathy I. SheffieldWhat We Do | | $246,240What We Do Not Do |
Pay for Performance: Our executive compensation plan is aligned with stockholder interests by rewarding for strong financial performance and stock price appreciation. | | (1)No Stock Option Re-Pricing:
|
Robert G. Fergus | | $197,220 | (1) We do not permit re-pricing of equity awards without stockholder approval.
|
(1)Stock Ownership /Retention Requirements: Ms. Sheffield retired as Senior Vice President, AdministrationOur directors, executive officers and Treasurer effective November 30, 2017certain other key employees are subject to robust stock ownership and Mr. Fergus retired as Vice President, Manufacturing effective April 27, 2017. This amount represents each person's annual salary.retention requirements.
| | No Tax Gross-Ups: We do not provide tax gross-ups. |
At-Will Employment: Our executive officers are employed at-will and we do not use employment agreements. | | No Hedging in Company Securities: Our directors, executive officers and other employees are prohibited from engaging in hedging transactions, short sales or derivative transactions with respect to AAON securities. |
Independent Compensation Consultant: We utilize an independent compensation consultant reporting directly to the Compensation Committee. | | Perquisites: We do not offer perquisites to our NEOs. Benefits available to our NEOs are consistent with those offered to all employees. |
Compensation Clawback: Our executive officers are subject to a compensation clawback policy (with a three-year look-back period) that requires reimbursement of any bonus or incentive compensation (as well as the cancellation of unvested, restricted or deferred equity awards) in the event of officer misconduct that was a material factor causing a restatement of the Company’s financial statements. | | |
In approving these executives’ salary levels,Our executive compensation programs are determined and approved by our Compensation Committee, after consideration of recommendations by the PEO and information provided by the Compensation Committee's independent compensation consultant. The Compensation Committee, took into account certain factors including, recommendationshowever, uses its own judgment to ultimately make the final decisions concerning compensation paid to our NEOs.
None of the principal executive officer (exceptNEOs are members of the Compensation Committee. The Compensation Committee has the direct responsibility and authority to review and approve our goals and objectives relative to the compensation of the NEOs, and to determine and approve (either as a committee or with the other members of our Board who qualify as “independent” directors under applicable guidelines adopted by NASDAQ) the compensation levels of the NEOs. However, when making pay decisions for himself), benchmark information receivedthe NEOs, we consider input and recommendations from the independentCompany's PEO (for individuals other than himself).
Our historical executive compensation consultant, each executives’ individual experience and responsibilities as well as the Company’s performance.
Annual Cash Incentive Bonuses
Weprograms have an “at risk” annual incentive bonus which is intended to facilitate alignment of management with corporate objectivesachieve two objectives:
•To enhance our profitability, and thus stockholder interests in order to achieve outstanding performancevalue; and to meet specific AAON financial goals by:
providing the employees designated by the Committee, incentive compensation tied to stockholder interests and goals for the Company;
providing competitive compensation (base salary and incentive bonus, based, in part, on salary) to•To attract, motivate, reward and retain high quality employees, including executive personnel, who achieve outstanding performance;contribute to our long-term success.
fostering accountability and teamwork throughoutAs described in more detail below, the Company; and
contributing to the long-term successmaterial elements of the Company.
At the recommendation of the Compensation Committee, the Board has authorized Mr. Asbjornson, as the CEO, to provide further detailed recommendations on theour historical executive compensation program for NEOs include a base salary, annual incentive bonus planbonuses, equity-based compensation and individual objectives within such plan with respectCompany contributions to each other Named Executive Officer, and the CEO will, with the Compensation Committee’s approval, have the authority to increase or decrease the individual annual incentive awards (up to 15%) for each other Named Executive Officer based upon Mr. Asbjornson's evaluation of such officer’s annual objectives.AAON’s 401(k) plan.
We believe that the annual incentive bonus should be a substantial component of total compensation and be based upon achievement of AAON’s annual "Opportunity Budget" (which is the Company's budgeted net income before “profit sharing” and income taxes, but after bonus accrual). Incentive compensation opportunities are expressed as a percentageeach element of the executive officer’s base salary multiplied by a bonus factor. The bonus factor is calculated using a formula determined by the Compensation Committee that results in a multiplecompensation program helps to achieve one or both of the amount by which the Company exceeded (or approached) the Opportunity Budget.
compensation objectives outlined above. The table below details the results for the fiscal year ended December 31, 2017:
|
| | | |
Opportunity Budget | Actual Results | % of Opportunity Budget | Bonus Factor |
$88 million | $74.7 million | 85% | .50 |
The eligible bonus amount for Norman H. Asbjornsonlists each material element of our executive compensation program and the other Named Executive Officers in 2017 are shown in the chart below:compensation objective or objectives that it is designed to achieve.
| | | | | | | | |
Compensation Element | | Compensation Objectives |
| | |
Base salary | | - Attract and retain qualified executives |
| | - Motivate and reward executives’ performance |
| | - Stay competitive in the marketplace |
| | |
Bonus compensation | | - Motivate and compensate executives’ performance |
| | - Stay competitive in the marketplace |
| | |
Equity-based compensation – stock options | | - Enhance profitability of AAON and stockholder value by |
and restricted stock awards | | aligning executives with stockholders' interests |
| | - Attract and retain qualified executives |
| | |
Retirement benefits – 401(k) and health | | - Attract and retain qualified executives |
savings account | | |
| |
Name | Eligible % of Base Salary |
Norman H. Asbjornson | 75% |
Gary D. Fields | 50% |
Scott M. Asbjornson | 35% |
Mikel D. Crews | 35% |
Sam Neale | 35% |
Kathy I. Sheffield | 35% |
Robert G. Fergus | 35% |
In the event the Company’s performance exceeds the level necessary for our Named Executive Officers to earn a bonus under the annual cash incentive bonus plan, the Board has the discretion (with the advice of the Compensation Committee) in the case of Norman H. Asbjornson, and Mr. Asbjornson has the discretion in the case of the other Named Executive Officers, to increase or decrease the bonus amount earned by each Named Executive Officer up to 15% based on how such individual has performed in relation to his or her annual objectives. For 2017, no adjustments were made to any of the bonus amounts.
As an example, the calculation for Norman H. Asbjornson is detailed below:
|
| | | | | |
Base Salary | Eligible % of Base Salary | Bonus Factor | Preliminary Bonus | Adjustment | Total Annual Incentive Bonus Amount |
$480,960 | 75% | .50 | $179,184 | $— | $179,184 |
For the year ended December 31, 2017 annual incentive cash bonuses were accrued as of December 31, 2017 and paid March 2, 2018 to all of our Named Executive Officers as follows:
|
| | | | | | | | | |
Name | Preliminary Bonus | Adjustment | Total Annual Incentive Bonus Amount |
Norman H. Asbjornson | $ | 179,184 |
| $ | — |
| $ | 179,184 |
|
Gary D. Fields | $ | 86,930 |
| $ | — |
| $ | 86,930 |
|
Scott M. Asbjornson | $ | 42,808 |
| $ | — |
| $ | 42,808 |
|
Mikel D. Crews | $ | 32,190 |
| $ | — |
| $ | 32,190 |
|
Sam Neale | $ | 35,641 |
| $ | — |
| $ | 35,641 |
|
Kathy I. Sheffield (1) | $ | — |
| $ | — |
| $ | — |
|
Robert G. Fergus (1) | $ | — |
| $ | — |
| $ | — |
|
(1) Ms. Sheffield and Mr. Fergus each retired during 2017 and were not eligible to receive an annual cash incentive bonus. |
The annual incentive bonus is reported in the following columns of the "Summary Compensation Table" for each Named Executive Officer, the “Bonus” column, for the adjustment portion, and the "Non-Equity Incentive Plan Compensation" column, for the preliminary calculated annual incentive bonus portion.
Perquisites
Philosophy
We provide some Named Executive Officers with certain perquisites and personal benefits, including automobile related expenses. We utilize certain tax advantages associated with perquisites and personal benefits as a way to provide additional annual
Our executive compensation that supplements base salaries and bonus opportunities granted to Named Executive Officers. Perquisites are reported in the “All Other Compensation” column of the “Summary Compensation Table” for each Named Executive Officer if applicable and if reporting threshold requirements were met.
Equity-Based Compensation
Our policyprogram is that the Named Executive Officers’ long-term compensation should be directly linked to enhancing profitability and value provided to our stockholders. Accordingly, the Compensation Committee grants equity awards under our 2007 LTIP and 2016 Incentive Plan designed to link an increasereward performance for enhanced profitability, revenue growth and ultimately increased stockholder value. We believe in stockholder valuea compensation plan that fosters a culture of ownership and allows us to compensation. Such grantsattract and retain top talent who are largely based upon the recommendation of the principal executive officer (except as to himself) basedsimilarly focused on the Named Executive Officer’s performance in the prior year and his or her expected future contribution to our performance.
Historically, the Company has not based executive officer equity compensation decisions on pre-established performance targets or other quantitative criteria, as manycreation of the applicable operational and financial performance measures which affect Company profitability (and stockholder value) are contingent upon a combination of general economic factors, e.g., raw material prices, which are beyond the control of any individual. However, positive overall Company performance (from both a financial as well as stock price stand point) is a primary element associated with the grant of equity-based compensation to the executive officers as a group. When determining the total value of compensation provided tolong-term value. We reward our executive officers our Compensation Committee, with the advice of our CEO, evaluates various aspects of Company performance in light of general economic conditions, as well as comparison of the Company performance against similar competitors in the industry. Performance elements considered may include cost containment initiatives, product and marketing development, risk management, or successful completion of major capital projects including production line enhancements. These elements have not been specifically weighted in determining the amount of the equity incentive awards because the relative importance of each element may change from time to time and the responsibilities of each executive officer, as they contribute to the achievement of any particular objective, may vary.
Factors considered when determining any specific equity-based award include:
the responsibilities of the executive officer;
the scope, level of expertise and experience required for the executive officer’s position and the period during which the officer has performed these responsibilities;
the strategic impact of the officer’s position; and
the potential future contribution of the officer.
For financial statement purposes, stock option and restricted stock award grants are valued using the Black-Scholes Model in accordance with Financial Accounting Standards Board Codification Topic 718, Compensation - Stock Compensation (“FASB ASC Topic 718”) and are calculated as a part of the executivepay mix that emphasizes long-term compensation package for the year based on the amount of requisite service period served. The grant date fair value of the options as determined under generally accepted accounting principles is shown in the “Summary Compensation Table” below. Non-qualifiedthrough stock options and restricted stock awards to align stockholder and executives’ interests. We strive to provide total compensation that aligns with the market median for Named Executive OfficersNEOs and utilize an annual bonus program to incentivize executive officers to meet Company performance goals. We maintain a compensation program that operates in the best interests of AAON and our stockholders, rewarding NEOs based on performance.
Under the terms of the Compensation Committee Charter, the Compensation Committee is authorized to engage independent advisors, at the Company's expense, to advise the Compensation Committee on any matters within the scope of the Committee's duties. For 2020, the Compensation Committee retained Meridian Compensation Partners, LLC ("Meridian") to serve as an independent consultant to the Committee to provide information and objective advice regarding executive compensation. The Committee did not direct Meridian to perform its services in any particular manner or under any particular method. The Committee has the final authority to hire and terminate the compensation consultant and the Committee evaluates the compensation consultant annually. Meridian does not provide any services to the Company other key employees generally vest ratably over five years. than in its role as advisor to the Committee, and the Committee has determined that no conflicts of interest exists as a result of the engagement of Meridian.
Benchmarking and Peer Group
The Compensation Committee believesevaluates executive compensation by benchmarking our NEOs’ target total compensation relative to comparable market data provided by our independent compensation consultant. Market references are provided for our NEOs, where available, from our peer group which consists of 16 publicly-traded companies in similar industries to AAON (detailed below). This group is reviewed and approved annually, with changes made as needed, considering changes to business characteristics, size, M&A, etc. Where data may be limited for certain roles, or as an additional market reference, survey data is also used and is reflective of manufacturing organizations with revenue approximately 0.5 to 2x that these awards encourage Named Executive Officersof AAON.
When making compensation-related decisions, the Committee considers individual and company performance, tenure, future potential, etc.The Committee generally sets target total direct compensation for our NEOs to continuebe competitive with the Company’s peer group and other market data. The peer group used for making 2020 pay decisions is detailed below:
| | | | | |
2020 Peer Group |
Ameresco, Inc. | PGT Innovations, Inc. |
Armstrong World Industries, Inc. | Quanex Building Products Corporation |
CECO Environmental Corp. | Raven Industries, Inc. |
Continental Building Products | Simpson Manufacturing Co., Inc. |
CSW Industrials, Inc. | The Gorman-Rupp Company |
Gibraltar Industries, Inc. | Thermon Group Holdings, Inc. |
Insteel Industries, Inc. | Trex Company, Inc. |
The following criteria were considered in determining the members of the Company’s 2020 peer group: publicly-traded manufacturing industry companies with revenues approximately between 0.5 times and 2 times that of the Company. Based on the Committee’s 2020 peer group review, Continental Building Products was removed due to use their best professional skillsacquisition, while Encore Wire Corporation and Lydall, Inc. were added to retain Named Executive Officers for longer terms.the peer group.
Say-On-Pay
Awards
We provide our stockholders the opportunity to cast an advisory vote (previously, once every three years, and following our 2020 Annual Meeting, on an annual basis) to approve the compensation of our NEOs as disclosed pursuant to the SEC's compensation disclosure rules.
Proposal No. 2 in this Proxy Statement provides our stockholders an opportunity to cast an advisory vote to approve the compensation of our NEOs. The results of this advisory vote (commonly known as a "say-on-pay proposal"), while not binding on the Company, are granted to new key employees on their hire date. Other grant date determinations are madetaken into account by the Compensation Committee whichin its determinations regarding the key components, design and implementation of our executive compensation program.
At our 2020 Annual Meeting of Stockholders, the ballot included our most recent say-on-pay proposal. The vote was not binding on the Company, the Board of Directors or the Compensation Committee. Of the votes cast, including abstentions, 95.85% were “FOR” the compensation of the NEOs Taking into consideration these results, the Compensation Committee determined that the Company's executive compensation practices for 2020 continued to be appropriate and therefore did not make any specific changes to them in response to the 2020 say-on-pay vote.
2020 Executive Compensation Program Elements
The following discussion, as well as the historical information contained in the tables below, are based upon the date the Committee metour historical and proper communication was made to the Named Executive Officer or key employee as definedcurrent compensation plans, in effect in 2020 and in the definition of grant date by FASB ASC Topic 718. Stock option exercise prices are equal to the value of AAON stock on the close of business on the determined grant date. We have no program or practice to coordinate timing of grants with release of material, nonpublic information.
previous reported year.
The aggregate amount of stock compensation expense as determined under ASC Topic 718, Compensation - Stock Compensation, for 2017, 2016 and 2015 with respect to outstanding options and restricted stock awards granted to the Named Executive Officers is shown in the “Summary Compensation Table” below. The grant date fair value of the options and restricted stock awards granted to the Named Executive Officers in 2017, 2016 and 2015 as determined under FASB ASC Topic 718 for purposes of our financial statements is shown in the “Grants of Plan-Based Awards Table” below. The “Grants of Plan-Based Awards Table” below provides additional detail regarding the options and restricted stock awards granted to Named Executive Officers in 2017, 2016 and 2015, including the vesting and other terms that apply to the options and restricted stock awards.
Equity Ownership Guidelines
The Board approved stock ownership guidelines for directors, executive officers and other key employees in order to further align the interest of our directors and executive officers with those of our stockholders. Our equity ownership guidelines are as follows:
Amount of Ownership: determined as a multiple of the individual’s base salary or a specified dollar value, as noted below. These amounts represent the minimum amount of AAON stock an individual should seek to acquire and maintain:
|
| |
Directors | $150,000 worth of AAON Stock |
CEO | 5 times base salary |
Other executive officers/certain key employees | 3 times base salary |
Timing: Directors and the CEO have five years from the date of hire, promotion or election (as the case may be) to acquire the ownership levels set forth above, which they are expected to retain during their tenure with the Company in such position. The other executive officers and
key employees subject to the equity ownership guidelines are required to build equity positions reaching the appropriate level beginning with any equity-based award issued to them by the Company after June 23, 2015.
Eligible Forms of Equity to Determine Value:
| |
◦ | Shares actually owned by the individual will be valued at market value if the individual provides documentation of such ownership (excluding any shares held in the Company's 401(k) plan). |
| |
◦ | Unvested restricted stock awards are valued at the grant date fair value under generally accepted accounting principles. |
| |
◦ | Potentially exercisable stock options are valued at the grant date fair value under generally accepted accounting principles. |
As of March 19, 2018, all current non-employee directors satisfy the ownership requirements. Since Mr. Norman Asbjornson and Mr. Fields are executive officers of the Company (in addition to being directors), they must each comply with the equity ownership guidelines applicable to their respective officer positions. As of March 19, 2018, Mr. Norman Asbjornson satisfied the requirements and all of our remaining named executive officers have met the equity ownership guidelines, with the exception of Mr. Fields, who was appointed as President of AAON in November of 2016.
Policy Against Hedging Stock
We prohibitOur Insider Trading Policy (which was adopted by the Board in November 2014) prohibits our directors, officers and other key employees, and their designees, from engaging in short sales or from hedging transactions of any nature that are designed to hedge or offset a decrease in market value of such person’s ownership of the Company's equity securities. WeOur Insider Trading Policy also prohibitprohibits our directors, officers and other employees, and their designees, from purchasing financial instruments or engaging in other problematic transactions involving the Company’s equity securities, including, puts, calls, collars, forward contracts or other derivative securities concerning the Company's equity securities. We prohibit such conduct since doing sopurchasing such financial instruments or engaging in such transactions would result in the individual no longer being exposed to the full risks of ownership of the Company’s equity securities, which may weaken the alignment of such individual with the objectives of the Company’s stockholders. Additionally, our directors, officers and other key employees may not hold their Company equity securities in a margin account.
Whistleblower Procedures
The Audit Committee has established procedures for the submission of complaints regarding accounting, internal accounting controls, audit and other matters.These procedures include processes for the confidential and anonymous submission of concerns of any such matters by our employees.Our Code of Business Conduct and Ethics prohibits retaliation against employees who report suspected violations of the Code of Business Conduct and Ethics or other misconduct.
Sustainability
Our Company is widely recognized as a leader in the design, manufacture and sale of energy efficient HVAC products.Our product offerings include some of the most energy efficient products in our industry.We have a proud history of challenging conventional wisdom and forging our own path through a never-ending commitment to innovation and continuous improvement of our products and manufacturing methodologies.These underlying principles guide our commitment to environmental stewardship, sustainability and social responsibility.We endeavor to utilize company resources in a manner that creates long-term value for our stockholders while minimizing our impact on natural resources and the environment.
We also strive to add value and support to the communities in which our employees live and work, through financial contributions, employee volunteerism and donations of HVAC equipment to charitable and other civic organizations.
We endeavor to attract, employ and retain a well-rounded, diverse team of individuals.Additionally, we place priorities on developing and maintaining an inclusive and safe workplace and strive to emphasize and support opportunities for our team members to engage in professional and personal development.
Our commitment to these practices runs deep and not only improves the wellbeing of our workforce, but also contributes to the communities in which we operate and provides the Company the best opportunity to continue to deliver value to our stockholders, team members and all other stakeholders.
Director Independence
The Board has adopted director independence standards that meet and/or exceed listing standards set by NASDAQ. NASDAQ has set forth six applicable tests and requires that a director who fails any of the tests be deemed not independent. The Board has affirmatively determined that Ms. Kouplen, Ms. Lawhorn and Messrs. Lackey, LeClair and McElroy are independent under the Company's guidelines and independence standards of NASDAQ and the SEC. Messrs. Asbjornson and Fields do not qualify as independent under the standards set forth below.
Our director independence standards are as follows:
It is the policy of the Board that a majority of the members of the Board consist of directors independent of AAON and our management. For a director to be deemed “independent,” the Board must affirmatively determine that (apart from his or her status as a director) the director has no material relationship with AAON or its affiliates or any member of the senior management of AAON or his or her affiliates. In making this determination, the Board applies, at a minimum and in addition to any other standards for independence established under applicable statutes and regulations as outlined by the NASDAQ listing standards, the following standards, which it may amend or supplement from time to time:
▪A director who is, or has been within the last three years, one of our employees, or whose immediate family member is, or has been within the last three years a Named Executive Officer, cannot be deemed independent. Employment as an interim Chairman or Chief Executive Officer will not disqualify a director from being considered independent following that employment.
▪A director who has received, or who has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from us, other than director and committee fees and benefits under a tax-qualified retirement plan, or non-discretionary compensation for prior service (provided such compensation is not contingent in any way on continued service), cannot be deemed independent. Compensation received by a director for former service as an interim Chairman or Chief Executive Officer and compensation received by an immediate family member for service as a non-executive employee will not be considered in determining independence under this test.
▪A director who (A) is, or whose immediate family member is, a current partner of a firm that is our external auditor; (B) is a current employee of such a firm; or (C) was, or whose immediate family member was, within the last three years (but is no longer) a partner or employee of such a firm and personally worked on our audit within that time cannot be deemed independent.
▪A director who is, or whose immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of our present Named Executive Officers at the time serves or has served on that company’s compensation committee cannot be deemed independent.
▪A director who is a current employee or general partner, or whose immediate family member is a current executive officer or general partner, of an entity that has made payments to, or received payments from us for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $200,000 or 5% of such other entity’s consolidated gross revenues, other than payments arising solely from investments in AAON’s securities or payments under non-discretionary charitable contribution matching programs, cannot be deemed independent.
For purposes of the independence standards set forth above, the terms:
▪“affiliate” means any consolidated subsidiary of AAON and any other company or entity that controls, is controlled by or is under common control with AAON;
▪“executive officer” means an “officer” within the meaning of Rule 16a-1(f) under the Exchange Act, as amended; and
▪“immediate family” means spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone (other than employees) sharing a person’s home, but excluding any person who is no longer an immediate family member as a result of legal separation or divorce, death or incapacitation.
In addition to the director independence standards set forth above, the Board also requires the Chairs and all other committee members to satisfy the heightened independence standards set forth under applicable NASDAQ and SEC rules for committee memberships. In connection with its assessment of the independence of the directors as set forth above, the Board also determined that our Audit Committee Chair and all other Audit Committee members meet the additional independence standards of NASDAQ and the SEC applicable to members of the Audit Committee.
The Board undertakes an annual review of the independence of all non-employee directors. In advance of the meeting at which this review occurs, each non-employee director is asked to provide the Board with full information regarding the director’s business and other relationships with us and our affiliates and with senior management and their affiliates to enable the Board to evaluate the director’s independence.
Directors have an affirmative obligation to inform the Board of any material changes in their circumstances or relationships that may impact their designation by the Board as “independent”. This obligation includes all business relationships between, on the one hand, directors or members of their immediate family, and, on the other hand, AAON and our affiliates or members of senior management and their affiliates, whether or not such business relationships are subject to any other approval requirements by us.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This compensation discussion and analysis provides information regarding our executive compensation program in 2020 for the following executive officers of the Company (collectively, the "named executive officers" or “NEOs”):
| | | | | | |
Gary D. Fields | President and Chief Executive Officer | |
Norman H. Asbjornson | Executive Chairman | |
Scott M. Asbjornson | Vice President, Finance and Chief Financial Officer | |
Rebecca A. Thompson | Chief Accounting Officer and Treasurer | |
Stephen E. Wakefield | Vice President, Chief Operating Officer | |
Mr. Gary Fields and Mr. Scott Asbjornson are NEOs by reason of their positions as the principal executive officer ("PEO") and principal financial officer ("PFO"), respectively, of the Company during 2020. Mr. Norman Asbjornson, Ms. Thompson and Mr. Wakefield are NEOs as they were our three most highly compensated executive officers (other than our PEO and PFO) who were serving at the end of 2020.
Executive Summary
During 2020, our executive officers led our efforts to increase sales, execute our internal capital expenditure programs and position the Company to capitalize on anticipated growth. Some of the key accomplishments during 2020 include:
•Achieved record sales of $514.6 million, an increase of 9.6% from 2019;
•Achieved improvement in our gross profit to 30.3% of sales compared to 25.4% of sales for the year ended 2019;
•Improved warranty expense in 2020, extending the trend from 2019 and 2018;
•Exercised disciplined management of capital expenditures during 2020 totaling $67.8 million; and
•Neared completion of our new building in Longview, Texas, adding nearly 200,000 square feet expansion of additional manufacturing capacity.
While we continued to deliver solid sales results in 2020, several growth-related challenges negatively impacted our net income. The primary challenges faced by the Company during 2020 were:
•Employee absenteeism, mostly in June 2020, related to COVID-19; and
•Weakened demand, especially in the fourth quarter of 2020 particularly in end-markets significantly impacted by the COVID-19 pandemic.
The following outlines key features of our compensation program, in addition to typical "best practices" that we adhere to:
| | | | | | | | |
What We Do | | What We Do Not Do |
Pay for Performance: Our executive compensation plan is aligned with stockholder interests by rewarding for strong financial performance and stock price appreciation. | | No Stock Option Re-Pricing: We do not permit re-pricing of equity awards without stockholder approval. |
Stock Ownership /Retention Requirements: Our directors, executive officers and certain other key employees are subject to robust stock ownership and retention requirements. | | No Tax Gross-Ups: We do not provide tax gross-ups. |
At-Will Employment: Our executive officers are employed at-will and we do not use employment agreements. | | No Hedging in Company Securities: Our directors, executive officers and other employees are prohibited from engaging in hedging transactions, short sales or derivative transactions with respect to AAON securities. |
Independent Compensation Consultant: We utilize an independent compensation consultant reporting directly to the Compensation Committee. | | Perquisites: We do not offer perquisites to our NEOs. Benefits available to our NEOs are consistent with those offered to all employees. |
Compensation Clawback: Our executive officers are subject to a compensation clawback policy (with a three-year look-back period) that requires reimbursement of any bonus or incentive compensation (as well as the cancellation of unvested, restricted or deferred equity awards) in the event of officer misconduct that was a material factor causing a restatement of the Company’s financial statements. | | |
Our executive compensation programs are determined and approved by our Compensation Committee, after consideration of recommendations by the PEO and information provided by the Compensation Committee's independent compensation consultant. The Compensation Committee, however, uses its own judgment to ultimately make the final decisions concerning compensation paid to our NEOs.
None of the NEOs are members of the Compensation Committee. The Compensation Committee has the direct responsibility and authority to review and approve our goals and objectives relative to the compensation of the NEOs, and to determine and approve (either as a committee or with the other members of our Board who qualify as “independent” directors under applicable guidelines adopted by NASDAQ) the compensation levels of the NEOs. However, when making pay decisions for the NEOs, we consider input and recommendations from the Company's PEO (for individuals other than himself).
Our historical executive compensation programs have intended to achieve two objectives:
•To enhance our profitability, and thus stockholder value; and
•To attract, motivate, reward and retain high quality employees, including executive personnel, who contribute to our long-term success.
As described in more detail below, the material elements of our historical executive compensation program for NEOs include a base salary, annual incentive bonuses, equity-based compensation and Company contributions to AAON’s 401(k) plan.
We believe that each element of the executive compensation program helps to achieve one or both of the compensation objectives outlined above. The table below lists each material element of our executive compensation program and the compensation objective or objectives that it is designed to achieve.
| | | | | | | | |
Compensation Element | | Compensation Objectives |
| | |
Base salary | | - Attract and retain qualified executives |
| | - Motivate and reward executives’ performance |
| | - Stay competitive in the marketplace |
| | |
Bonus compensation | | - Motivate and compensate executives’ performance |
| | - Stay competitive in the marketplace |
| | |
Equity-based compensation – stock options | | - Enhance profitability of AAON and stockholder value by |
and restricted stock awards | | aligning executives with stockholders' interests |
| | - Attract and retain qualified executives |
| | |
Retirement benefits – 401(k) and health | | - Attract and retain qualified executives |
savings account | | |
| | |
Compensation Philosophy
Our executive compensation program is designed to reward performance for enhanced profitability, revenue growth and ultimately increased stockholder value. We believe in a compensation plan that fosters a culture of ownership and allows us to attract and retain top talent who are similarly focused on the creation of long-term value. We reward our executive officers with a pay mix that emphasizes long-term compensation through stock options and restricted stock awards to align stockholder and executives’ interests. We strive to provide total compensation that aligns with the market median for NEOs and utilize an annual bonus program to incentivize executive officers to meet Company performance goals. We maintain a compensation program that operates in the best interests of AAON and our stockholders, rewarding NEOs based on performance.
Under the terms of the Compensation Committee Charter, the Compensation Committee is authorized to engage independent advisors, at the Company's expense, to advise the Compensation Committee on any matters within the scope of the Committee's duties. For 2020, the Compensation Committee retained Meridian Compensation Partners, LLC ("Meridian") to serve as an independent consultant to the Committee to provide information and objective advice regarding executive compensation. The Committee did not direct Meridian to perform its services in any particular manner or under any particular method. The Committee has the final authority to hire and terminate the compensation consultant and the Committee evaluates the compensation consultant annually. Meridian does not provide any services to the Company other than in its role as advisor to the Committee, and the Committee has determined that no conflicts of interest exists as a result of the engagement of Meridian.
Benchmarking and Peer Group
The Compensation Committee evaluates executive compensation by benchmarking our NEOs’ target total compensation relative to comparable market data provided by our independent compensation consultant. Market references are provided for our NEOs, where available, from our peer group which consists of 16 publicly-traded companies in similar industries to AAON (detailed below). This group is reviewed and approved annually, with changes made as needed, considering changes to business characteristics, size, M&A, etc. Where data may be limited for certain roles, or as an additional market reference, survey data is also used and is reflective of manufacturing organizations with revenue approximately 0.5 to 2x that of AAON.
When making compensation-related decisions, the Committee considers individual and company performance, tenure, future potential, etc.The Committee generally sets target total direct compensation for our NEOs to be competitive with the Company’s peer group and other market data. The peer group used for making 2020 pay decisions is detailed below:
| | | | | |
2020 Peer Group |
Ameresco, Inc. | PGT Innovations, Inc. |
Armstrong World Industries, Inc. | Quanex Building Products Corporation |
CECO Environmental Corp. | Raven Industries, Inc. |
Continental Building Products | Simpson Manufacturing Co., Inc. |
CSW Industrials, Inc. | The Gorman-Rupp Company |
Gibraltar Industries, Inc. | Thermon Group Holdings, Inc. |
Insteel Industries, Inc. | Trex Company, Inc. |
The following criteria were considered in determining the members of the Company’s 2020 peer group: publicly-traded manufacturing industry companies with revenues approximately between 0.5 times and 2 times that of the Company. Based on the Committee’s 2020 peer group review, Continental Building Products was removed due to acquisition, while Encore Wire Corporation and Lydall, Inc. were added to the peer group.
Say-On-Pay
We provide our stockholders the opportunity to cast an advisory vote (previously, once every three years, and following our 2020 Annual Meeting, on an annual basis) to approve the compensation of our NEOs as disclosed pursuant to the SEC's compensation disclosure rules.
Proposal No. 2 in this Proxy Statement provides our stockholders an opportunity to cast an advisory vote to approve the compensation of our NEOs. The results of this advisory vote (commonly known as a "say-on-pay proposal"), while not binding on the Company, are taken into account by the Compensation Committee in its determinations regarding the key components, design and implementation of our executive compensation program.
At our 2020 Annual Meeting of Stockholders, the ballot included our most recent say-on-pay proposal. The vote was not binding on the Company, the Board of Directors or the Compensation Committee. Of the votes cast, including abstentions, 95.85% were “FOR” the compensation of the NEOs Taking into consideration these results, the Compensation Committee determined that the Company's executive compensation practices for 2020 continued to be appropriate and therefore did not make any specific changes to them in response to the 2020 say-on-pay vote.
2020 Executive Compensation Program Elements
The following discussion, as well as the historical information contained in the tables below, are based upon our historical and current compensation plans, in effect in 2020 and in the previous reported year.
Base Salaries
Below is a summary of 2020 base salaries for our NEOs:
| | | | | | | | | | | |
Named Executive Officer | 2019 Base Salary | 2020 Base Salary | Percent Increase |
Gary D. Fields | $357,006 | $600,000 | 68% |
Norman H. Asbjornson | $480,960 | $555,000 | 15% |
Scott M. Asbjornson | $259,688 | $305,000 | 17% |
Rebecca A. Thompson | $235,066 | $240,000 | 2% |
Stephen E. Wakefield | $180,752 | $245,000 | 36% |
In 2020, AAON underwent a series of planned executive leadership changes in accordance with the Company's succession plans.In May, Mr. Stephen Wakefield was promoted to the role of Vice President and Chief Operations Officer. In May, Mr. Norman Asbjornson, CEO, assumed the role of Executive Chairman and Gary Fields was promoted to President and Chief Executive Officer.Mr. Norm Asbjornson received a base salary increase in March of 2020 as part of the annual compensation planning process and did not receive an additional increase associated with his transition to Executive Chairman.In approving these executives’ salary levels, the Committee took into account certain factors, including, recommendations of the principal executive officer (except as it related to himself), each executives’ individual experience and responsibilities, as well as the Company’s performance. Further, as shown in the comprehensive benchmarking study conducted by the independent compensation consultant, base salary levels for each of our NEOs were positioned below the 25th percentile of the applicable market benchmark.Base salary increases were based on the Company's performance, market data (with market adjustments made with the intention of beginning to close the “gap” to the market median, over time) and other internal considerations.
Annual Cash Incentive Bonuses
We have an “at risk” annual incentive bonus which is intended to facilitate alignment of management with corporate objectives and stockholder interests in order to achieve outstanding performance and to meet specific AAON financial goals by:
•providing the employees designated by the Committee, incentive compensation tied to stockholder interests and goals for the Company;
•providing competitive compensation to attract, motivate, reward and retain employees who achieve outstanding performance;
•fostering accountability and teamwork throughout the Company; and
•contributing to the long-term success of the Company.
We believe the annual incentive bonus should be a substantial component of total compensation and based upon achievement of AAON’s annual "Opportunity Budget" which consists of two components:
1.Operating Profit (67%) - The Company's Operating Profit calculated as the Company's budgeted revenue and the net income before “profit sharing” and income taxes, but after bonus accrual; and
2.Revenue (33%) - The Company’s budgeted revenue.
The Annual Incentive compensation opportunity is expressed as a percentage of the executive officer’s base salary multiplied by a bonus factor.Bonus factors for each Named Executive Officer are as follows:
| | | | | | | | |
Named Executive Officer | 2019 Bonus Target | 2020 Bonus Target |
| | |
Gary D. Fields | 50% | 100% |
Norman H. Asbjornson | 75% | 75% |
Scott M. Asbjornson | 35% | 65% |
Rebecca A. Thompson | 35% | 50% |
Stephen E. Wakefield | 35% | 65% |
Based on a comprehensive benchmarking analysis conducted in 2019, our target bonus opportunities for our NEOs were shown to be below the 25th percentile of the applicable market benchmark. Increases to 2020 target bonus opportunities were made to enhance AAON’s competitive positioning relative to market and to emphasize our pay-for-performance philosophy.
The following table reflects performance and payout level percentages for the Annual Incentive compensation opportunity:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Metric | | Weighting | | Performance Level (% of Target) (1) | | Payout Level (% of Target) (1) |
| | Threshold | Target | Maximum | | Threshold | Target | Maximum |
Operating Profit | | 67% | | 80% | 100% | 125% | | 33.33% | 100% | 200% |
Revenue | | 33% | | 95% | 100% | 105% | | 33.33% | 100% | 200% |
(1) For performance between stated levels shown, payouts are determined based on straight-line, linear interpolation. No payout will be made if threshold performance is not met. |
The following table details the results for the fiscal year ended December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Metric | | Opportunity Budget | | Actual Results | | % of Opportunity Budget | | Bonus Factor |
Operating Profit | | $97.0 million | | $104.2 million | | 107% | | 1.30 |
Revenue | | $533.9 million | | $514.6 million | | 96% | | 0.52 |
| | | | | | Weighted Bonus Factor | | 1.04 |
The eligible bonus amounts for our NEOs are shown in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | Base Salary | | Eligible % of Base Salary | | Bonus Target | | Weighted Bonus Factor | | Annual Incentive Bonus Amount |
Gary D. Fields | $532,098 | (2) | 100% | (1) | $468,304 | | 1.04 | | $487,036 |
Norman H. Asbjornson | $559,260 | (2) | 75% | (1) | $457,866 | | 1.04 | | $476,181 |
Scott M. Asbjornson | $306,274 | (2) | 65% | | $191,453 | | 1.04 | | $199,111 |
Rebecca A. Thompson | $248,092 | (2) | 50% | | $119,431 | | 1.04 | | $124,208 |
Stephen E. Wakefield | $238,058 | (2) | 65% | (1) | $146,527 | | 1.04 | | $152,388 |
(1) Percentage reflects position at the end of year. A blended % was used in the bonus calculation for those whose positions changed during the year. |
(2) Salary is cash compensation for the year and reflects varying pay levels during the year. |
For our NEOs to be eligible to qualify for the Company’s annual incentive cash bonus, the Company’s actual performance must equal at least 80% of the annual Opportunity Budget threshold amount for Operating Profit and at least 95% of the annual Opportunity Budget threshold amount for Revenue, which is set in advance (typically in February of each year) by the Compensation Committee.
At the recommendation of the Compensation Committee, the Board has authorized Mr. Fields, as the CEO, to provide further detailed recommendations on the annual incentive bonus plan and individual objectives within such plan with respect to each other NEO.The CEO will, with the Compensation Committee’s approval, have the authority to increase or decrease the individual annual incentive awards (up to 15%) for each other NEO based upon Mr. Fields’ evaluation of such officer’s annual objectives.
The annual incentive bonus, when awarded, is reported in the "Summary Compensation Table" for each NEO. The "Non-Equity Incentive Plan Compensation" column is the result of the bonus target multiplied by the bonus factor and the "Bonus" column represents any discretionary adjustments made to the Non-Equity Incentive Plan Compensation value.
Equity-Based Compensation
Our policy is that the NEOs’ long-term compensation should be directly linked to enhancing profitability and value provided to our stockholders. Accordingly, the Compensation Committee grants equity awards under our 2016 Incentive Plan, designed to link an increase in stockholder value to compensation. Such grants are largely based upon the recommendation of the principal executive officer (except as to himself) based on the NEOs performance in the prior year and his or her expected future contribution to our performance.
Positive overall Company performance (financial as well as stock price performance) is a primary element associated with the grant of equity-based compensation to the executive officers as a group. When determining the total value of compensation provided to our executive officers, our Compensation Committee, with the advice of our CEO, evaluates various aspects of Company performance in light of general economic conditions, as well as comparison of the Company's performance against similar competitors in the industry. Performance elements considered may include improvement in sales performance, cost containment initiatives, product and marketing development, risk management, or successful completion of major capital projects, including enhancements to manufacturing operations. These elements have not been specifically weighted in determining the amount of the equity incentive awards because the relative importance of each element may change from time to time and the responsibilities of each executive officer, as they contribute to the achievement of any particular objective, may vary.
Factors considered when determining any specific equity-based award include:
•the responsibilities of the executive officer;
•the scope, level of expertise and experience required for the executive officer’s position and the period during which the officer has performed these responsibilities;
•the strategic impact of the officer’s position; and
•the potential future contribution of the officer.
Non-qualified stock options and restricted stock awards for NEOs and other key employees generally vest ratably on an annual basis over five years. The Compensation Committee believes that these awards encourage NEOs to drive stockholder value creation and aid in the retention of NEOs.
Awards may be granted to new key employees on their hire date. Other grant date determinations are made by the Compensation Committee, which are based upon the date the Committee met and proper communication was made to the NEO or key employee as defined in the definition of grant date by FASB ASC Topic 718. Stock option exercise prices are equal to the value of AAON stock on the close of business on the determined grant date. We have no program or practice to coordinate timing of grants with release of material, nonpublic information.
We believe it is important for a significant portion of our total compensation to executive officers be in the form of equity. This approach helps ensure the interests of our executive officers are properly aligned with our stockholders and also rewards our executive officers for driving results that enhance profitability and increase stockholder value.
The following shares of equity awards were granted in 2020 to our NEOs:
| | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | | Restricted Stock Awards | | Option Awards | | 2020 Total Shares Awarded |
Gary D. Fields | | 6,087 | | 82,340 | | 88,427 |
Norman H. Asbjornson | | 7,232 | | 78,880 | | 86,112 |
Scott M. Asbjornson | | 1,970 | | 29,140 | | 31,110 |
Rebecca A. Thompson | | 1,870 | | 27,710 | | 29,580 |
Stephen E. Wakefield | | 2,850 | | 42,320 | | 45,170 |
Changes to Equity-Based Compensation Beginning 2021
While we recognize shareholders strongly support the current design of our equity compensation program (as demonstrated by the results of the say-on-pay shareholder vote), the Compensation Committee is always exploring ways to improve the design and further enhance shareholder alignment. The current design focuses on retention (via time-vested restricted shares) and shareholder value creation (via stock options).
Beginning with grants made in 2021, a third equity element will be introduced to the NEOs and will be tied to long-term performance criteria. These performance share units (PSUs) will measure AAON’s three-year total shareholder return (TSR) relative to an index of companies in similar industries. In addition, the vesting horizon for the time-vested restricted shares and stock options will be changed to three years in order to align with the three-year performance period/vesting horizon of the PSUs.
Beginning in 2021, the equity mix will be approximately 50% stock options, 25% restricted shares, and 25% PSUs. The Committee intends to further increase the emphasis on PSUs over time, particularly for the CEO position. These changes have been made considering market “best practices” in an effort to
balance the need for retention with motivation of long-term performance and shareholder alignment.Over time, the increased use of PSUs and RSAs as a key component of our Long-Term Incentive Plan will reduce the dilutive effect inherent with the heavy use of stock options.
Retirement Benefits - Defined Contribution Plan, 401(k) and Health Savings Account
We sponsor a defined contribution plan (the "Plan”). Eligible employees may make contributions in accordance with the Plan and IRS guidelines. In addition to the traditional 401(k), eligible employees are given the option of making an after-tax contribution to a Roth 401(k) or a combination of both. The Plan provides for automatic enrollment and for an automatic increase to the default deferral percentage at January 1st of each year and each year thereafter.year. Eligible employees are automatically enrolled in the Plan at a 6% deferral rate and currently contributing employees' deferral rates are increased to 6% each year, unless their current rate is above 6% or the employee elects to decline the automatic enrollment or increase.
Effective October 1, 2013, the Plan was amended such that the Company contributed 3% of eligible payroll to the Plan for each employee and matched 100% up to 6% of employee contributions of eligible compensation. The additional 3% Company contribution, a Safe-Harbor contribution, vested over two years.
Effective January 1, 2016, the Plan was amended such that the Company presently matches 175% up to 6% of employee contributions of eligible compensation. The Company no longer contributes 3% of eligible payroll to the Plan for each employee. The Company has ceased paying administrativeAdministrative expenses for the Plan and expenses are now paid for by Plan participants. Additionally, Plan participant forfeitures are used to reduce the cost of the Company contributions. We contribute in the form of cash and direct the investment to shares of AAON stock. Employees are 100% vested in salary deferral contributions and vest 20% per year at the end of years two through six of employment in employer matching contributions.
The amounts contributed by us to each Named Executive OfficerNEO under the 401(k) plan are based on actual contributions and the base salary, bonus and equity compensation of the employee, and are reported in the “All Other Compensation” column of the “Summary Compensation Table” for each Named Executive Officer,NEO, if applicable, and if the threshold reporting requirements were met. Our employees participate in a high-deductible heathhealth savings plan wherein they may open a Health Savings Account. We previously provided a match of approximately 25% for employee contributions to their Health Savings Account. Effective October 1, 2014, we changed our matching and matched 100% of employee contributions to their Health Savings Account. Effective January 1, 2016, we changed our matching and now match 175% of employee contributions to their Health Savings Account.
Equity Ownership and Retention Guidelines
In December 2019, the Board approved new robust equity ownership and retention guidelines for directors, executive officers and other key employees in order to further align the interest of our directors and executive officers with those of our stockholders. Our equity ownership and retention guidelines are as follows:
•Amount of Ownership: determined as a multiple of the individual’s base salary or a specified dollar value, as noted below. These amounts represent the minimum amount of AAON stock an individual should seek to acquire and maintain:
| | | | | |
Position | Minimum Stock Ownership Requirements |
CEO | 6 times base salary |
President (when separate from CEO) | 4 times base salary |
Other Executive Officers | 3 times base salary |
Non-Officer Senior Leadership Team Members | 2 times base salary |
Directors | $280,000 (or 6 times base retainer, whichever is higher) |
•Applicability: This new policy applies to all unvested stock options outstanding at January 1, 2020 and all new equity grants of any kind made by the Company on or after January 1, 2020. Shares vested from restricted stock awards granted by the Company prior to January 1, 2020, and stock options that have vested prior to such date, will not be subject to the retention requirements set forth herein, but may count towards satisfying the applicable required ownership level.
•Timing: Individuals have a five-year period beginning on the date that an individual is hired, promoted or elected (as the case may be) to a position which subjects them to this Policy to meet the minimum stock ownership requirements.
•Eligible Forms of Equity to Determine Value:
◦Shares actually owned by the individual will be valued at market value if the individual provides documentation of such ownership (excluding any shares held in the Company's 401(k) plan).
◦Potentially exercisable stock options are valued at 65% of the grant date fair value under generally accepted accounting principles.
As of March 15, 2021, all current non-employee directors satisfy the ownership requirements (or are within five years from their respective dates of election). Since Mr. Norman Asbjornson and Mr. Fields are executive officers of the Company (in addition to being directors), they must each comply with the equity ownership guidelines applicable to their respective officer positions. As of March 15, 2021, all NEOs satisfied the applicable requirements (or are within five years from their respective dates of promotion).
Prohibition on Hedging Stock
Our Insider Trading Policy prohibits our directors, NEOs and all other insiders (including each of their designees) from engaging in short sales or from hedging transactions of any nature that are designed to hedge or offset a decrease in market value of such person’s ownership of the Company's equity securities.Our Insider Trading Policy also prohibits our directors, NEOs and all other insiders (including each of their designees) from purchasing financial instruments or engaging in other problematic transactions involving the Company’s equity securities, including, puts, calls, collars, forward contracts or other derivative securities concerning the Company's equity securities.We prohibit such conduct since purchasing such financial instruments or engaging in such transactions would result in our insiders no longer being exposed to the full risks of ownership of the Company’s equity securities, which may weaken the alignment of our insiders with the objectives of the Company’s stockholders.Additionally, our directors, NEOs and all other insiders may not hold their Company equity securities in a margin account.
Clawback Policy
Our Company has a Compensation Adjustment and Recovery Policy for our NEOs.Pursuant to this policy (commonly referred to as a clawback policy), our NEOs are subject to a compensation clawback (with a three-year look-back period) that requires reimbursement of any bonus or incentive compensation (as well as the cancellation of unvested, restricted or deferred equity awards) in the event of officer misconduct that was a material factor causing a restatement of the Company’s financial statements.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis section of this Proxy Statement required by Item 402(b) of Regulation S-K. Based upon this review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis section be included in this Proxy Statement.Statement and incorporated by reference in our Form 10-K.
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| |
Compensation Committee of the Board of Directors: |
|
A.H. McElroy II, ChairmanChair |
Angela E. Kouplen, Member |
Stephen O. LeClair, Member |
The information contained in this Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates such information by reference in any such filing.
Compensation Committee’s Interlocks and Insider Participation
No member of the Compensation Committee is or has been a former or current Named Executive OfficerNEO of AAON or had any relationships requiring disclosure by us under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. None of our Named Executive OfficersNEOs identified herein served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity.
Compensation of Named Executive Officers
The “Summary Compensation Table” set forth below should be read in connection with the tables and narrative descriptions that follow. The “Grants of Plan-Based Awards Table”, and the description of the material terms of the nonqualified options and restricted stock awards granted in 2017, 20162020, 2019 and 20152018 that follows it, provide information regarding the long-term equity incentives awarded to Named Executive OfficersNEOs in 2017, 20162020, 2019 and 20152018 that are also reported in the “Summary Compensation Table”. The “Outstanding Equity Awards at Fiscal Year End Table” and “Option Exercises and Stock Vesting Table” provide further information on the Named Executive Officers’NEOs’ potential realizable value and actual value realized with respect to their equity awards.
We did not have any pension plans, non-qualified deferred compensation plans or severance, retirement, termination, written or unwritten constructive termination or change in control arrangements for any of our Named Executive OfficersNEOs for the year ended December 31, 2017.
2020.
Summary Compensation Table
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Name and Principal Position | Year | Salary ($) | | Bonus ($) | | Restricted Stock Awards(1) ($) | Option Awards(1) ($) | Non-Equity Incentive Plan Compensation ($) | | All Other Compensation ($) | | Total ($) |
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Norman H. Asbjornson CEO | 2017 | 480,960 |
| | — |
| (9) | 950,556 |
| 320,043 |
| 179,184 |
| (9) | 96,552 |
| (2) | 2,027,295 |
|
2016 | 480,960 |
| | (8,715 | ) | | 782,817 |
| 320,497 |
| 359,521 |
| | 92,977 |
| (2) | 2,028,057 |
|
2015 | 480,960 |
| | 51,065 |
| | 988,748 |
| 413,193 |
| 340,433 |
| | 99,779 |
| (2) | 2,374,178 |
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Gary D. Fields President | 2017 | 350,000 |
| | — |
| (9) | 277,984 |
| 333,958 |
| 86,930 |
| (9) | 70,468 |
| (3) | 1,119,340 |
|
2016 | 45,769 |
| | — |
| | 157,243 |
| 60,377 |
| 26,834 |
| | 58,822 |
| (3) | 349,045 |
|
2015 | — |
| | — |
| | 118,501 |
| — |
| — |
| | 33,379 |
| (3) | 151,880 |
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Scott M. Asbjornson Vice President, Finance and CFO
. | 2017 | 246,220 |
| | — |
| (9) | 139,369 |
| 291,039 |
| 42,808 |
| (9) | 32,645 |
| (4) | 752,081 |
|
2016 | 246,220 |
| | — |
| | 130,609 |
| 65,167 |
| 85,891 |
| | 32,135 |
| (4) | 560,022 |
|
2015 | 246,220 |
| | 12,200 |
| | 101,241 |
| 48,201 |
| 81,330 |
| | 37,112 |
| (4) | 526,304 |
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Mikel D. Crews, Vice President of Operations | 2017 | 185,148 |
| | — |
| (9) | 179,344 |
| 272,709 |
| 32,190 |
| (9) | 30,668 |
| (5) | 700,059 |
|
2016 | 154,574 |
| | — |
| | 150,443 |
| 31,120 |
| 54,419 |
| | 27,416 |
| (5) | 417,972 |
|
2015 | 116,637 |
| | 5,861 |
| | — |
| — |
| 39,074 |
| | 17,652 |
| (5) | 179,224 |
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Sam J. Neale, Vice President | 2017 | 205,000 |
| | — |
| (9) | 171,910 |
| 299,310 |
| 35,641 |
| (9) | 30,602 |
| (6) | 742,463 |
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2016 | 205,000 |
| | 6,436 |
| | 82,923 |
| 41,363 |
| 71,511 |
| | 25,951 |
| (6) | 433,184 |
|
2015 | 205,000 |
| | 10,157 |
| | 84,280 |
| 40,126 |
| 67,715 |
| | 31,873 |
| (6) | 439,151 |
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Kathy I. Sheffield Senior Vice President, Administration/Treasurer | 2017 | 270,627 |
| (10) | — |
| (9) | 22,352 |
| 220,850 |
| — |
| (9) | 31,150 |
| (7) | 544,979 |
|
2016 | 246,240 |
| | — |
| | 130,609 |
| 65,167 |
| 85,898 |
| | 22,473 |
| (7) | 550,387 |
|
2015 | 246,240 |
| | 12,201 |
| | 101,241 |
| 48,201 |
| 81,337 |
| | 35,962 |
| (7) | 525,182 |
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Robert G. Fergus Vice President, Manufacturing | 2017 | 99,274 |
| (11) | — |
| (9) | 96,309 |
| — |
| — |
| (9) | 19,479 |
| (8) | 215,062 |
|
2016 | 197,220 |
| | 6,192 |
| | 60,135 |
| 30,047 |
| 68,797 |
| | 24,150 |
| (8) | 386,541 |
|
2015 | 197,220 |
| | 9,772 |
| | 81,120 |
| 38,621 |
| 65,145 |
| | 35,962 |
| (8) | 427,840 |
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(1) See discussion of assumptions made in valuing these awards in the notes to our financial statements. The values reflect grant date fair value of awards. Compensation costs are recognized for option and restricted stock awards over their requisite service period. |
(2) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $28,350, $27,825 and $33,488 in 2017, 2016 and 2015, respectively; (ii) director fees in the amount of $40,000, $40,000 and $40,000 in 2017, 2016 and 2015, respectively; (iii) payment of personal car lease in the amount of $25,402, $24,501 and $24,168 in 2017, 2016 and 2015, respectively; (iv) matching contributions to a Health Savings Account in the amount of $2,800, $636 and $2,123 in 2017, 2016 and 2015, respectively; (v) gift card in the amount of $15 in 2016. |
(3) Mr. Fields was elected as a Director at the May 19, 2015 annual meeting and elected as President on November 1, 2016. Consists of (i) contributions to our 401(k) plan by AAON in the amount of $28,350 and $4,807 in 2017 and 2016, respectively; (ii) director fees in the amount of $40,000, $54,000 and $33,379 in 2017, 2016 and 2015, respectively; (iii) matching contributions to a Health Savings Account in the amount of $2,118 in 2017; (iv) gift card in the amount of $15 in 2016. |
(4) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $28,350, $27,825 and $33,787 in 2017, 2016 and 2015, respectively; (ii) matching contributions to a Health Savings Account in the amount of $4,295, $4,295 and $3,325 in 2017, 2016 and 2015, respectively; (iii) gift card in the amount of $15 in 2016. |
(5) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $27,868, $24,633 and $14,327 in 2017, 2016 and 2015, respectively; (ii) matching contributions to a Health Savings Account in the amount of $2,800, $2,768 and $3,325 in 2017, 2016 and 2015, respectively; (iii) gift card in the amount of $15 in 2016. |
(6) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $28,350, $23,819 and $28,654 in 2017, 2016 and 2015, respectively; (ii) matching contributions to a Health Savings Account in the amount of $2,132, $2,132 and $3,219 in 2017, 2016 and 2015, respectively; (iii) gym membership reimbursement in the amount of $120 in 2017. |
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Summary Compensation Table |
Name and Principal Position | Year | Salary ($) | | Bonus ($) | | Restricted Stock Awards(1) ($) | Option Awards(1) ($) | Non-Equity Incentive Plan Compensation ($) | | All Other Compensation ($) | | Total ($) |
| | | | | | | | | | | | |
Gary D. Fields President and CEO | 2020 | 532,098 | | — | | | 272,071 | | 1,038,471 | | 487,036 | | | 57,997 | | (2) | 2,387,673 | |
2019 | 354,042 | | | — | | | 284,174 | | 969,619 | | — | | | 57,775 | | (2) | 1,665,610 | |
2018 | 350,000 | | | — | | | 359,052 | | 591,114 | | — | | | 66,871 | | (2) | 1,367,037 | |
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Norman H. Asbjornson Executive Chairman | 2020 | 559,260 | | — | | | 317,068 | | 913,501 | | 476,181 | | | 70,571 | | (3) | 2,336,581 | |
2019 | 480,960 | | — | | | 204,434 | | 1,959,869 | | — | | | 77,312 | | (3) | 2,722,575 | |
2018 | 480,960 | | | — | | | 309,030 | | 1,080,441 | | — | | | 76,035 | | (3) | 1,946,466 | |
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Scott M. Asbjornson Vice President, Finance and CFO | 2020 | 306,274 | | — | | | 84,021 | | 337,467 | | 199,111 | | | 34,453 | | (4) | 961,326 | |
2019 | 253,990 | | | — | | | 119,610 | | 711,742 | | — | | | 33,855 | | (4) | 1,119,197 | |
2018 | 246,220 | | | — | | | 114,336 | | 372,598 | | — | | | 33,266 | | (4) | 766,420 | |
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Rebecca A. Thompson Chief Accounting Officer and Treasurer | 2020 | 248,092 | | — | | | 79,756 | | 320,907 | | 124,208 | | | 34,453 | | (5) | 807,416 | |
2019 | 233,119 | | | — | | | 39,870 | | 629,221 | | — | | | 33,855 | | (5) | 936,065 | |
2018 | 230,464 | | | — | | | 46,449 | | 268,943 | | — | | | 33,266 | | (5) | 579,122 | |
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Stephen E. Wakefield Vice President, Chief Operating Officer | 2020 | 238,058 | | — | | | 121,553 | | 490,104 | | 152,388 | | | 34,271 | | (6) | 1,036,374 | |
2019 | 173,800 | | | — | | | 159,480 | | 938,674 | | — | | | 33,855 | | (6) | 1,305,809 | |
2018 | 151,671 | | | — | | | 107,190 | | 207,310 | | — | | | 25,693 | | (6) | 491,864 | |
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(1) See discussion of assumptions made in valuing these awards in the notes to our financial statements. The values reflect grant date fair value of awards. Compensation costs are recognized for option and restricted stock awards over their requisite service period. |
(2) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $15,728, $15,548 and $24,676 in 2020, 2019 and 2018, respectively; (ii) director fees in the amount of $40,000, $40,000, $40,000 in 2020, 2019 and 2018, respectively; (iii) matching contributions to a Health Savings Account in the amount of $2,259, $2,227 and $2,195 in 2020, 2019 and 2018, respectively; and (iv) $10 PPE bonus in 2020. |
(3) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $29,925, $25,981 and $7,801, in 2020, 2019 and 2018, respectively; (ii) director fees in the amount of $40,000, $40,000 and $40,000 in 2020, 2019 and 2018, respectively; (iii) payment of personal car lease in the amount of $8,467 and $25,402 in 2019 and 2018, respectively; (iv) matching contributions to a Health Savings Account in the amount of $636, $2,864 and $2,832 in 2020, 2019 and 2018, respectively; and (v) $10 PPE bonus in 2020. |
(4) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $29,925, $29,400 and $28,875 in 2020, 2019 and 2018, respectively; (ii) matching contributions to a Health Savings Account in the amount of $4,518, $4,455 and $4,391 in 2020, 2019 and 2018, respectively; and (iv) $10 PPE bonus in 2020. |
(5) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $29,925, $29,400 and $28,875 in 2020, 2019 and 2018, respectively; (ii) matching contributions to a Health Savings Account in the amount of $4,518, $4,455 and $4,391 in 2020, 2019 and 2018, respectively; and (iv) $10 PPE bonus in 2020. |
(6) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $29,925, $29,400 and $21,398 in 2020, 2019 and 2018, respectively; (ii) matching contributions to a Health Savings Account in the amount of $4,336, $4,295 and $4,295 in 2020, 2019 and 2018, respectively; and (iv) $10 PPE bonus in 2020.
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(7) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $28,350, $19,690 and $33,787 in 2017, 2016 and 2015, respectively; (ii) matching contributions to a Health Savings Account in the amount of $2,800, $2,768 and $2,175 in 2017, 2016 and 2015, respectively; (iii) gift card in the amount of $15 in 2016.
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(8) Consists of (i) contributions to our 401(k) plan by AAON in the amount of $18,298, $21,382 and $33,787 in 2017, 2016 and 2015, respectively; (ii) matching contributions to a Health Savings Account in the amount of $1,181, $2,768 and $2,175 in 2017, 2016 and 2015, respectively.
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(9) These annual incentive cash bonuses were accrued at December 31, 2017 and paid on March 2, 2018.
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(10) Ms. Sheffield retired as Senior Vice President, Administration and Treasurer effective November 30, 2017. Her salary includes accrued paid-time off which was paid to her upon retirement.
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(11) Mr. Fergus retired as Vice President, Manufacturing effective April 27, 2017. His salary includes accrued paid-time off which was paid to him upon retirement.
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We award stock incentives to key employees and the Named Executive OfficersNEOs either on the initial date of employment or due to performance incentives throughout the year. The 2017, 20162020, 2019 and 20152018 grants to Named Executive OfficersNEOs are reported in the table below. All share numbers and prices have been adjusted to reflect stock splits.
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Grants of Plan-Based Awards |
Name | Grant Date | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value of Stock/Option Awards ($) (1) | |
| | | | | | |
Gary D. Fields | 3/11/20 | 2,900 | | | | 123,685 | | |
3/11/20 | | 43,040 | | 44.22 | | 498,442 | | |
| 5/12/20 | 3,187 | | | | 148,386 | | |
| 5/12/20 | | 39,300 | | 47.54 | | 540,029 | | |
| 3/11/19 | 5,000 | | | | 199,350 | | |
| 3/11/19 | | 94,000 | | 41.37 | | 969,619 | | |
| 5/14/19 | 1,846 | | | | 84,824 | | |
| 1/2/18 | 6,000 | | | | 214,380 | | |
| 1/2/18 | | 63,300 | | 36.95 | | 591,114 | | |
| 5/15/18 | 5,062 | | | | 144,672 | | |
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Norman H. Asbjornson | 3/11/20 | 5,320 | | | | 226,898 | | |
3/11/20 | | 78,880 | | 44.22 | | 913,501 | | |
| 5/12/20 | 1,912 | | | | 90,170 | | |
| 3/11/19 | 3,000 | | | | 119,610 | | |
| 3/11/19 | | 190,000 | | 41.37 | | 1,959,869 | | |
| 5/14/19 | 1,846 | | | | 84,824 | | |
| 1/2/18 | 4,600 | | | | 164,358 | | |
| 1/2/18 | | 115,700 | | 36.95 | | 1,080,441 | | |
| 5/15/18 | 5,062 | | | | 144,672 | | |
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Scott M. Asbjornson | 3/11/20 | 1,970 | | | | 84,021 | | |
3/11/20 | | 29,140 | | 44.22 | | 337,467 | | |
| 3/11/19 | 3,000 | | | | 119,610 | | |
| 3/11/19 | | 69,000 | | 41.37 | | 711,742 | | |
| 1/2/18 | 3,200 | | | | 114,336 | | |
| 1/2/18 | | 39,900 | | 36.95 | | 372,598 | | |
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Rebecca A. Thompson | 3/11/20 | 1,870 | | | | 79,756 | | |
3/11/20 | | 27,710 | | 44.22 | | 320,907 | | |
| 3/11/19 | 1,000 | | | | 39,870 | | |
| 3/11/19 | | 61,000 | | 41.37 | | 629,221 | | |
| 1/2/18 | 1,300 | | | | 46,449 | | |
| 1/2/18 | | 28,800 | | 36.95 | | 268,943 | | |
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Stephen E. Wakefield | 3/11/20 | 2,850 | | | | 121,553 | | |
3/11/20 | | 42,320 | | 44.22 | | 490,104 | | |
| 3/11/19 | 4,000 | | | | 159,480 | | |
| 3/11/19 | | 91,000 | | 41.37 | | 938,674 | | |
| 1/2/18 | 3,000 | | | | 107,190 | | |
| 1/2/18 | | 22,200 | | 36.95 | | 207,310 | | |
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(1) The grant date fair value of the stock awards is calculated in accordance with ASC Topic 718. |
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Grants of Plan-Based Awards | |
Name | Grant Date | 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/Option Awards | |
| | | | | | |
Norman H. Asbjornson | 5/16/17 | 5,062 |
| | | 181,675 |
| (1) |
| 2/22/17 | | 35,870 |
| 34.40 |
| 320,043 |
| (2) |
| 2/22/17 | 23,180 |
| | | 768,881 |
| (3) |
| 5/24/16 | 5,062 |
| | | 139,154 |
| (4) |
| 1/26/16 | 32,410 |
| | | 643,663 |
| (5) |
| 1/26/16 | | 34,990 |
| 20.92 |
| 320,497 |
| (6) |
| 5/19/15 | 5,062 |
| | | 118,501 |
| (7) |
| 2/26/15 | 38,320 |
| | | 870,247 |
| (8) |
| 2/26/15 | | 38,320 |
| 23.57 |
| 413,193 |
| (9) |
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Gary D. Fields | 5/16/17 | 5,062 |
| | | 181,675 |
| (1) |
| 1/4/17 | | 37,350 |
| 34.10 |
| 333,958 |
| (10) |
| 1/4/17 | 2,930 |
| | | 96,309 |
| (11) |
| 12/1/16 | 575 |
| | | 18,089 |
| (12) |
| 12/1/16 | | 6,945 |
| 32.70 |
| 60,377 |
| (13) |
| 5/24/16 | 5,062 |
| | | 139,154 |
| (4) |
| 5/19/15 | 5,062 |
| | | 118,501 |
| (7) |
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Scott M. Asbjornson | 1/4/17 | | 32,550 |
| 34.10 |
| 291,039 |
| (10) |
| 1/4/17 | 4,240 |
| | | 139,369 |
| (11) |
| 1/4/16 | 6,190 |
| | | 130,609 |
| (12) |
| 1/4/16 | | 6,680 |
| 22.15 |
| 65,167 |
| (13) |
| 1/2/15 | 4,805 |
| | | 101,241 |
| (14) |
| 1/2/15 | | 4,805 |
| 21.93 |
| 48,201 |
| (15) |
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Mikel D. Crews | 2/27/17 | | 3,345 |
| 34.15 |
| 29,952 |
| (16) |
| 2/27/17 | 945 |
| | | 31,100 |
| (17) |
| 1/4/17 | 4,510 |
| | | 148,244 |
| (10) |
| 1/4/17 | | 27150 |
| 34.10 |
| 242,756 |
| (11) |
| 1/4/16 | 7,130 |
| | | 150,443 |
| (12) |
| 1/4/16 | | 3190 |
| 22.15 |
| 31,120 |
| (13) |
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Sam J. Neale | 1/4/17 | | 33,475 |
| 34.10 |
| 299,310 |
| (10) |
| 1/4/17 | 5,230 |
| | | 171,910 |
| (11) |
| 1/4/16 | 3,930 |
| | | 82,923 |
| (12) |
| 1/4/16 | | 4,240 |
| 22.15 |
| 41,363 |
| (13) |
| 1/2/15 | 4,000 |
| | | 84,280 |
| (14) |
| 1/2/15 | | 4,000 |
| 21.93 |
| 40,126 |
| (15) |
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Kathy I. Sheffield | 1/4/17 | | 24,700 |
| 34.10 |
| 220,850 |
| (10) |
| 1/4/17 | 680 |
| | | 22,352 |
| (11) |
| 1/4/16 | 6,190 |
| | | 130,609 |
| (12) |
| 1/4/16 | | 6,680 |
| 22.15 |
| 65,167 |
| (13) |
| 1/2/15 | 4,805 |
| | | 101,241 |
| (14) |
| 1/2/15 | | 4,805 |
| 21.93 |
| 48,201 |
| (15) |
The aggregate amount of stock compensation expense as determined under ASC Topic 718, Compensation - Stock Compensation, for 2020, 2019 and 2018 with respect to outstanding options and restricted stock awards granted to the NEOs is shown in the “Summary Compensation Table”. The grant date fair value of the options and restricted stock awards granted to the NEOs in 2020, 2019 and 2018 as determined under FASB ASC Topic 718 for purposes of our financial statements is shown in the “Grants of Plan-Based Awards Table". The “Grants of Plan-Based Awards Table” provides additional detail regarding the options and restricted stock awards granted to NEOs in 2020, 2019 and 2018, including the vesting and other terms that apply to the options and restricted stock awards.
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Robert G. Fergus | 1/4/17 | 2,390 |
| | | 96,309 |
| (11) |
| 1/4/16 | 2,850 |
| | | 60,135 |
| (12) |
| 1/4/16 | | 3,080 |
| 22.15 |
| 30,047 |
| (13) |
| 1/2/15 | 3,850 |
| | | 81,120 |
| (14) |
| 1/2/15 | | 3,850 |
| 21.93 |
| 38,621 |
| (15) |
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(1) The fair value of these shares is $35.89 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
(2) The fair value of these shares is $8.92 per share based on the Black-Scholes pricing model. See discussion of assumptions made in valuing these awards in the notes to our financial statements.
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(3) The fair value of these shares is $33.17 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
(4) The fair value of these shares is $27.49 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
(5) The fair value of these shares is $19.86 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
(6) The fair value of these shares is $9.16 per share based on the Black-Scholes pricing model. See discussion of assumptions made in valuing these awards in the notes to our financial statements.
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(7) The fair value of these shares is $23.41 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
(8) The fair value of these shares is $22.71 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
(9) The fair value of these shares is $10.78 per share based on the Black-Scholes pricing model. See discussion of assumptions made in valuing these awards in the notes to our financial statements.
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(10) The fair value of these shares is $8.94 per share based on the Black-Scholes pricing model. See discussion of assumptions made in valuing these awards in the notes to our financial statements.
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(11) The fair value of these shares is $32.87 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
(12) The fair value of these shares is $31.46 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
(13) The fair value of these shares is $8.69 per share based on the Black-Scholes pricing model. See discussion of assumptions made in valuing these awards in the notes to our financial statements.
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(14) The fair value of these shares is $21.07 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
(15) The fair value of these shares is $10.03 per share based on the Black-Scholes pricing model. See discussion of assumptions made in valuing these awards in the notes to our financial statements.
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(16) The fair value of these shares is $8.95 per share based on the Black-Scholes pricing model. See discussion of assumptions made in valuing these awards in the notes to our financial statements.
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(17) The fair value of these shares is $32.91 per share based on the market value of the Company's stock reduced by the present value of dividends. See discussion of assumptions made in valuing these awards in the notes to our financial statements. | |
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
A discussion of 20172020 salaries, bonuses and long-term incentive awards is included in “Executive Compensation”.
Named Executive OfficersNEOs are not separately entitled to receive dividend equivalent rights with respect to each stock option, however, dividends are paid for restricted stock awards (retroactively upon vesting). Each nonqualified stock option award described in the “Grants of Plan-Based Awards Table” above expires on the tenth anniversary of its associated grant date and vests in equal installments over the course of three years for Board members and five years for executives. Restricted stock awards vest in equal installments over the course of one, two or three years for Board members (with such vesting period determined by, and five years for executives. Awardsequal to, the amount of time remaining on such Board member's then current term). Restricted stock awards granted to Norman H. Asbjornson and Gary D. Fields vest over a three-yearthree, two or one-year period (in the case of awards relating to their service as directors) or five-year period depending on which(in the case of awards relating to their capacities (officer or director) the award relates to.service as officers).
The following table presents information regarding outstanding equity awards as of December 31, 2017.2020.
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Outstanding Equity Awards at Fiscal Year End |
| Option Awards | Stock Awards |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Grant Date | Expiration Date | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested | | Equity Incentive Plan Awards: Market Value of Shares of Stock That Have Not Vested ($) |
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Gary D. Fields | | | | 12/1/16 | N/A | 115 | | (1) | 7,662 | |
2,778 | | 1,389 | | 32.70 | | 12/1/16 | 12/1/26 | | | |
| | | | 1/4/17 | N/A | 1,172 | | (1) | 78,090 | |
| 7,470 | | 14,940 | | 34.10 | | 1/4/17 | 1/4/27 | | | |
| | | | 1/2/18 | N/A | 3,600 | | (1) | 239,868 | |
| 12,660 | | 37,980 | | 36.95 | | 1/2/18 | 1/2/28 | | | |
| | | | 5/15/18 | N/A | 1,688 | | (2) | 112,471 | |
| | | | 3/11/19 | N/A | 4,000 | | (1) | 266,520 | |
| 18,800 | | 75,200 | | 41.37 | | 3/11/19 | 3/11/29 | | | |
| | | | 5/14/19 | N/A | 923 | | (2) | 61,499 | |
| | | | 3/11/20 | N/A | 2,900 | | (1) | 193,227 | |
| — | | 43,040 | | 44.22 | | 3/11/20 | 3/11/30 | | | |
| | | | 5/12/20 | N/A | 1,275 | | (1) | 84,953 | |
| | | | 5/12/20 | N/A | 1,912 | | (2) | 127,397 | |
| — | | 39,300 | | 47.54 | | 5/12/20 | 5/12/30 | | | |
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Norman H. Asbjornson | 38,320 | | — | | 23.57 | | 2/26/15 | 2/26/25 | | | |
| | | 1/26/16 | N/A | 6,482 | | (1) | 431,896 | |
| 27,992 | | 6,998 | | 20.92 | | 1/26/16 | 1/26/26 | | | |
| | | | 2/22/17 | N/A | 9,272 | | (1) | 617,793 | |
| 21,522 | | 14,348 | | 34.40 | | 2/22/17 | 2/22/27 | | | |
| | | | 1/2/18 | N/A | 2,760 | | (1) | 183,899 | |
| 46,280 | | 69,420 | | 36.95 | | 1/2/18 | 1/2/28 | | | |
| | | | 5/15/18 | N/A | 1,688 | | (2) | 112,471 | |
| | | | 3/11/19 | N/A | 2,400 | | (1) | 159,912 | |
| 38,000 | | 152,000 | | 41.37 | | 3/11/19 | 3/11/29 | | | |
| | | | 5/14/19 | N/A | 923 | | (2) | 61,499 | |
| | | | 3/11/20 | N/A | 5,320 | | (1) | 354,472 | |
| — | | 78,880 | | 44.22 | | 3/11/20 | 3/11/30 | | | |
| | | | 5/12/20 | N/A | 1,912 | | (2) | 127,397 | |
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(1) The restricted stock awards vest ratably over 5 years from the date of grant. |
(2) The restricted stock awards vest ratably over 3 years from the date of grant. |
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Outstanding Equity Awards at Fiscal Year End |
| Option Awards | Stock Awards |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Grant Date | Expiration Date | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested | Equity Incentive Plan Awards: Market Value of Shares of Stock That Have Not Vested ($) |
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Norman H. Asbjornson | | | | 5/20/14 | N/A | 19,686(1) | 722,476 |
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| | | | 2/26/15 | N/A | 22,922(2) | 843,806 |
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| 15,328 | 22,992 | 23.57 | 2/26/15 | 2/26/25 | | |
| | | | 5/19/15 | N/A | 1,687(3) | 61,913 |
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| | | | 1/26/16 | N/A | 25,928(4) | 951,558 |
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| 6,998 | 27,992 | 20.92 | 1/26/16 | 1/26/26 | | |
| | | | 5/24/16 | N/A | 3,375(5) | 123,863 |
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| — | 35,870 | 34.40 | 2/22/17 | 2/22/27 | | |
| | | | 2/22/17 | N/A | 23,180(6) | 850,706 |
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| | | | 5/16/17 | N/A | 5,062(7) | 185,775 |
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Gary D. Fields | | | | 5/19/15 | N/A | 1,687(3) | 61,913 |
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| | | | 5/24/16 | N/A | 3,375(5) | 123,863 |
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| | | | 12/1/16 | N/A | 460(8) | 16,882 |
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| 1,389 | 5,556 | 32.70 | 12/1/16 | 12/1/26 | | |
| — | 37,350 | 34.10 | 1/4/17 | 1/4/27 | | |
| | | | 1/4/17 | N/A | 2,930(9) | 107,531 |
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| | | | 5/16/17 | N/A | 5,062(7) | 185,775 |
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Scott M. Asbjornson | | | | 5/20/14 | N/A | 3,714(1) | 136,304 |
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| | | | 1/2/15 | N/A | 2,883(10) | 105,806 |
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| — | 2,883 | 21.93 | 1/2/15 | 1/2/25 | | |
| | | | 1/4/16 | N/A | 4,952(4) | 181,738 |
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| — | 5,344 | 22.15 | 1/4/16 | 1/4/26 | | |
| | | | 1/4/17 | N/A | 4,240(9) | 155,608 |
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| — | 32,550 | 34.10 | 1/4/17 | 1/4/27 | | |
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Mikel D. Crews | 2,250 | — | 7.18 | 9/6/11 | 9/6/21 | | |
| 1,350 | — | 8.65 | 5/15/12 | 5/15/22 | | |
| | | | 3/12/13 | N/A | 189(11) | 6,936 |
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| | | | 1/2/14 | N/A | 66(12) | 2,422 |
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| | | | 2/6/14 | N/A | 252(13) | 9,248 |
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Outstanding Equity Awards at Fiscal Year End - Continued |
| Option Awards | Stock Awards |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Grant Date | Expiration Date | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested | | Equity Incentive Plan Awards: Market Value of Shares of Stock That Have Not Vested ($) |
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Scott M. Asbjornson | | | | 1/4/16 | N/A | 1,238 | | (1) | 82,488 | |
— | | 1,336 | | 22.15 | | 1/4/16 | 1/4/26 | | | |
| | | | 1/4/17 | N/A | 1,696 | | (1) | 113,004 | |
| — | | 13,020 | | 34.10 | | 1/4/17 | 1/4/27 | | | |
| | | | 1/2/18 | N/A | 1,920 | | (1) | 127,930 | |
| — | | 23,940 | | 36.95 | | 1/2/18 | 1/2/28 | | | |
| | | | 3/11/19 | N/A | 2,400 | | (1) | 159,912 | |
| — | | 55,200 | | 41.37 | | 3/11/19 | 3/11/29 | | | |
| | | | 3/11/20 | N/A | 1,970 | | (1) | 131,261 | |
| — | | 29,140 | | 44.22 | | 3/11/20 | 3/11/30 | | | |
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Rebecca A. Thompson | 660 | | — | | 21.93 | | 1/2/15 | 1/2/25 | | | |
| | | 1/4/16 | N/A | 418 | | (1) | 27,851 | |
| 450 | | 450 | | 22.15 | | 1/4/16 | 1/4/26 | | | |
| | | | 1/4/17 | N/A | 1,632 | | (1) | 108,740 | |
| 10,300 | | 9,200 | | 34.10 | | 1/4/17 | 1/4/27 | | | |
| | | | 1/2/18 | N/A | 780 | | (1) | 51,971 | |
| 11,520 | | 17,280 | | 36.95 | | 1/2/18 | 1/2/28 | | | |
| | | | 3/11/19 | N/A | 800 | | (1) | 53,304 | |
| 12,200 | | 48,800 | | 41.37 | | 3/11/19 | 3/11/29 | | | |
| | | | 3/11/20 | N/A | 1,870 | | (1) | 124,598 | |
| — | | 27,710 | | 44.22 | | 3/11/20 | 3/11/30 | | | |
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Stephen E. Wakefield | 1,532 | | — | | 22.76 | | 12/18/15 | 12/18/25 | | | |
283 | | 283 | | 26.47 | | 8/1/16 | 8/1/26 | | | |
| 960 | | 480 | | 32.8 | | 11/18/16 | 11/18/26 | | | |
| | | | 1/2/18 | N/A | 1,800 | | (1) | 119,934 | |
| 8,880 | | 13,320 | | 36.95 | | 1/2/18 | 1/2/28 | | | |
| | | | 3/11/19 | N/A | 3,200 | | (1) | 213,216 | |
| 18,200 | | 72,800 | | 41.37 | | 3/11/19 | 3/11/29 | | | |
| | | | 3/11/20 | N/A | 2,850 | | (1) | 189,896 | |
| — | | 42,320 | | 44.22 | | 3/11/20 | 3/11/30 | | | |
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(1) The restricted stock awards vest ratably over 5 years from the date of grant. |
(2) The restricted stock awards vest ratably over 3 years from the date of grant. |
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| | | | 3/31/14 | N/A | 93(14) | 3,413 |
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| | | | 6/30/14 | N/A | 87(15) | 3,193 |
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| | | | 9/30/14 | N/A | 106(16) | 3,890 |
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| | | | 11/4/14 | N/A | 3,338(17) | 122,505 |
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| 638 | 2,552 | 22.15 | 1/4/16 | 1/4/26 | | |
| | | | 1/4/16 | N/A | 5,704(4) | 209,337 |
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| — | 27,150 | 34.10 | 1/4/17 | 1/4/27 | | |
| | | | 1/4/17 | N/A | 4,510(9) | 165,517 |
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| — | 3,345 | 34.15 | 2/27/17 | 2/27/27 | | |
| | | | 2/27/17 | N/A | 945(6) | 34,682 |
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Sam J. Neale | 4,500 | — | 8.65 | 5/15/12 | 5/15/22 | | |
| | | | 5/20/14 | N/A | 2,862(1) | 105,035 |
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| | | | 1/2/15 | N/A | 2,400(10) | 88,080 |
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| — | 2,400 | 21.93 | 1/2/15 | 1/2/25 | | |
| | | | 1/4/16 | N/A | 3,144(4) | 115,385 |
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| — | 3,392 | 22.15 | 1/4/16 | 1/4/26 | | |
| | | | 1/4/17 | N/A | 5,230(9) | 191,941 |
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| — | 33,475 | 34.10 | 1/4/17 | 1/4/27 | | |
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Kathy I. Sheffield | 18,750 | — | 6.89 | 5/25/10 | 5/25/20 | | |
| 22,500 | — | 8.65 | 5/15/12 | 5/15/22 | | |
| 4,805 | — | 21.93 | 1/2/15 | 1/2/25 | | |
| 6,680 | — | 22.15 | 1/4/16 | 1/4/26 | | |
| 24,700 | — | 34.10 | 1/4/17 | 1/4/27 | | |
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Robert G. Fergus | 13,500 | — | 8.65 | 5/15/12 | 5/15/22 | | |
| 3,850 | — | 21.93 | 1/2/15 | 1/2/25 | | |
| 3,080 | — | 22.15 | 1/4/16 | 1/4/26 | | |
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(1) The restricted stock awards vest ratably over 5 years and will be fully vested in May 2019.
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(2) The restricted stock awards vest ratably over 5 years and will be fully vested in February 2020.
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(3) The restricted stock awards vest ratably over 3 years and will be fully vested in May 2018.
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(4) The restricted stock awards vest ratably over 5 years and will be fully vested in January 2021.
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(5) The restricted stock awards vest ratably over 3 years and will be fully vested in May 2019.
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(6) The restricted stock awards vest ratably over 5 years and will be fully vested in February 2022.
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(7) The restricted stock awards vest ratably over 3 years and will be fully vested in May 2020.
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(8) The restricted stock awards vest ratably over 5 years and will be fully vested in December 2021.
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(9) The restricted stock awards vest ratably over 5 years and will be fully vested in January 2022.
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(10) The restricted stock awards vest ratably over 5 years and will be fully vested in January 2020.
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(11) The restricted stock awards vest ratably over 5 years and will be fully vested in March 2018.
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(12) The restricted stock awards vest ratably over 5 years and will be fully vested in January 2019.
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(13) The restricted stock awards vest ratably over 5 years and will be fully vested in February 2019.
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(14) The restricted stock awards vest ratably over 5 years and will be fully vested in March 2019.
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(15) The restricted stock awards vest ratably over 5 years and will be fully vested in June 2019.
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(16) The restricted stock awards vest ratably over 5 years and will be fully vested in September 2019.
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(17) The restricted stock awards vest ratably over 5 years and will be fully vested in November 2019.
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The following table presents information regarding the exercise of stock options by Named Executive OfficersNEOs during 2017.2020.
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Option Exercises |
Name | Option Awards |
Number of Shares Exercised (#) | Valued Realized on Exercise ($) |
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Gary D. Fields | — | — |
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Scott M. Asbjornson | 30,587 | 629,318 |
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Norman H. Asbjornson | — | — |
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Rebecca A. Thompson | 4,850 | 134,383 |
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Stephen E. Wakefield | — | — |
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Option Exercises |
Name | Option Awards |
Number of Shares Exercised (#) | Valued Realized on Exercise ($) |
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Norman H. Asbjornson | — | — |
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Gary D. Fields | — | — |
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Scott M. Asbjornson | 12,258 | 294,329 |
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Mikel D. Crews | — | |
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Sam A. Neale | 1,648 | 21,975 |
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Kathy I. Sheffield | 20,000 | 604,450 |
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Robert G. Fergus | — | — |
The following table sets forth information concerning our equity compensation plans as of December 31, 2017.2020.
Equity Compensation Plan Information
| | Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) | Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) |
| | (a) | | (b) | | (c) | | (a) | | (b) | | (c) |
Equity compensation plans approved by security holders (1) | | 557,311 | | 16.82 | 2,983,642 | Equity compensation plans approved by security holders (1) | | 740,061 | | 31.84 | 4,228,769 |
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Equity compensation plans not approved by security holders (2) | | -- | | -- | -- | Equity compensation plans not approved by security holders (2) | | — | | — | — |
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Total | | — | | — | — | Total | | 740,061 | | 31.84 | 4,228,769 |
(1) Consists of shares covered by the 2007 LTIP, as amended, and the 2016 Incentive Plan.Plan, as amended.
(2) We do not maintain any equity compensation plans that have not been approved by the stockholders.
CEOPEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information concerning the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Norman H. Asbjornson,Gary D. Fields, our Chief Executive Officer (“CEO”).PEO. For 2017,2020, our last completed fiscal year:
•the median of the annual total compensation of all employees of our Company (excluding our CEO)PEO) was $41,582;$48,069; and
•the annual total compensation of our CEO,PEO, as reported in the Summary Compensation Table included in this Proxy Statement, was $2,027,295.$2,387,673.
Based on this information, the ratio of the annual total compensation of our CEOPEO to the median of the annual total compensation to all other employees for 20172020 was 48.7549.67 to 1.
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO,PEO, we took the following steps:
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1. | We determined that, as of December 31, 2017, our employee population consisted of approximately 2,0001.We determined that, as of December 31, 2020, our employee population consisted of approximately 2,300 individuals with all of these individuals located within the United States (as reported in Item 1, Business, in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2021 (our “Annual Report”)). This population consisted of our full-time, part-time and temporary employees. a.We used December 31, 2020 for our determination date for ease of reconciling data back to tax and payroll records.
2.To identify the “median employee” from our employee population, we compared the amount of salary, wages, 401(k) contributions and HSA contributions as reflected in our payroll records as reported to the Internal Revenue Service on Form W-2 for 2020. a.Based on our particular facts and circumstances, we determined annualizing the total compensation of our permanent partial year employees would not reasonably reflect the annual compensation of our employee population. As a result, we did not annualize the total compensation of our permanent employees who worked less than all of 2020 and therefore excluded such partial year employees from the employee population utilized in our calculations.
Business, in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2018 (our “Annual Report”)). This population consisted of our full-time, part-time and temporary employees.
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a. | We used December 31, 2017 for our determination date for ease of reconciling data back to tax and payroll records. |
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2. | To identify the “median employee” from our employee population, we compared the amount of salary, wages, 401(k) contributions and HSA contributions as reflected in our payroll records as reported to the Internal Revenue Service on Form W-2 for 2017. |
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a. | Based on our particular facts and circumstances, we determined annualizing the total compensation of our permanent partial year employees would not reasonably reflect the annual compensation of our employee population. As a result, we did not annualize the total compensation of our permanent employees who worked less than all of 2017 and therefore excluded such partial year employees from the employee population utilized in our calculations. |
Since we historically widely distribute annual equity awards to all levels of our employees, such awards were included in our compensation measure.
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3. | We identified our median employee using this compensation measure, which was consistently applied to all of our employees included in the calculation. Since all of our employees (including our CEO) are located in the United States, we did not make any cost-of-living adjustments in identifying the median employee. |
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4. | After identifying our median employee, we combined all of the elements of such employee’s compensation for 2017 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, which resulted in annual total compensation of $41,582. The difference between such employee’s wages and the employee’s annual total compensation represents the estimated value of such employee’s 401(k) matching contributions, HSA matching contributions, and equity awards. |
3.We identified our median employee using this compensation measure, which was consistently applied to all of our employees included in the calculation. Since all of our employees (including our PEO) are located in the United States, we did not make any cost-of-living adjustments in identifying the median employee.
4.After identifying our median employee, we combined all of the elements of such employee’s compensation for 2020 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, which resulted in annual total compensation of $48,069. The difference between such employee’s wages and the employee’s annual total compensation represents the estimated value of such employee’s 401(k) matching contributions, HSA matching contributions, and equity awards.
For the annual total compensation of our CEO,PEO, we use the amount reported in the “Total” column of our 20172020 Summary Compensation Table included in this Proxy Statement and incorporated by reference under Item 11 of Part III of our Annual Report.
Non-Employee Director Compensation
OurDuring 2020, our fees for non-employee directors are paidwere as follows, with all amounts paid on a quarterly basis:
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Name | Annual Retainer ($) | Lead Director ($) | Chair Fee ($) | Audit ($) | Compensation ($) | Governance ($) | Total ($) |
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Angela E. Kouplen | 40,000 | — | — | 10,000 | 7,000 | — | 57,000 |
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Paul K. Lackey, Jr. (1) | 40,000 | 18,000 | 12,000 | 10,000 | — | Chair | 80,000 |
| | | | | | | |
Caron A. Lawhorn | 40,000 | — | 18,000 | Chair | — | 7,000 | 65,000 |
| | | | | | | |
Stephen O. LeClair | 40,000 | — | — | 10,000 | 7,000 | — | 57,000 |
| | | | | | | |
A.H. McElroy II | 40,000 | — | 12,000 | — | Chair | 7,000 | 59,000 |
| | | | | | | |
(1) Mr. Lackey took over as Lead Director after the departure of Mr. Jack Short in May 2020. |
|
| | | | | | |
Name | Annual Retainer ($) | Chair Fee ($) | Audit ($) | Compensation ($) | Governance ($) | Total ($) |
| | | | | | |
Jack E. Short | 40,000 | 18,000 | Chair | — | 7,000 | 65,000 |
| | | | | | |
Paul K. Lackey, Jr. | 40,000 | 12,000 | 10,000 | — | Chair | 62,000 |
| | | | | | |
A.H. McElroy II | 40,000 | 12,000 | — | Chair | 7,000 | 59,000 |
| | | | | | |
Stephen O. LeClair | 40,000 | — | 10,000 | 7,000 | — | 57,000 |
| | | | | | |
Angela E. Kouplen | 40,000 | — | 10,000 | 7,000 | — | 57,000 |
Under the current director compensation plan, the annual retainer is inclusive of meetings.
We make annual grants of restricted stock awards to directors in May at which timein conjunction with our annual meeting. In May 2020, each of Ms. Kouplen, Ms. Lawhorn and Messrs. N. Asbjornson, Fields, Short, Lackey, LeClair and McElroy received restricted stock awards for 5,0621,912 shares of stock, which vest ratably over three years.each member's remaining board term.
The following summarizes our non-employee director compensation for 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Director Compensation Table |
Name | Fees Earned or Paid in Cash ($) | | Restricted Stock Awards(1) ($) | | Stock Options ($) | | All Other Comp. ($) | | Total ($) |
| | | | | | | | | | |
Angela E. Kouplen | 57,000 | | | 90,170 | | (2) | — | | | — | | | 147,170 | |
| | | | | | | | | | |
Paul K. Lackey, Jr. | 80,000 | | | 89,443 | | (2) | — | | | — | | | 169,443 | |
| | | | | | | | | | |
Caron A. Lawhorn | 65,000 | | | 88,717 | | (2) | — | | | — | | | 153,717 | |
| | | | | | | | | | |
Stephen O. LeClair | 57,000 | | | 88,717 | | (2) | — | | | — | | | 145,717 | |
| | | | | | | | | | |
A.H. McElroy II | 59,000 | | | 89,443 | | (2) | — | | | — | | | 148,443 | |
| | | | | | | | | | |
(1) | The values reflect grant date fair value of awards ranging from $46.40 to $47.16 per share granted on May 12, 2020. See also, the discussion of assumptions made in valuing these awards in the notes to the Company’s financial statements. |
| | | | | | | | | | |
(2) | As of December 31, 2020, 4,523, 4,831, 2,932, 3,600 and 4,831 unvested shares associated with restricted stock awards were outstanding for Ms. Kouplen, Mr. Lackey, Ms. Lawhorn, Mr. LeClair and Mr. McElroy, respectively. Non-qualified options have not been granted during his or her term as a Board member. |
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Director Compensation Table |
Name | Fees Earned or Paid in Cash ($) | | Restricted Stock Awards(1) ($) | | Stock Options ($) | | All Other Comp. ($) | | Total ($) |
| | | | | | | | | |
Angela E. Kouplen | 57,000 |
| | 181,675 |
| (4) | — |
| | — |
| | 238,675 |
|
| | | | | | | | | |
Stephen O. LeClair | 35,704 |
| (2) | 181,675 |
| (2) | — |
| | — |
| | 217,379 |
|
| | | | | | | | | |
Jack E. Short | 65,000 |
| | 181,675 |
| (3) | — |
| | — |
| | 246,675 |
|
| | | | | | | | | |
Paul K. Lackey, Jr. | 62,000 |
| | 181,675 |
| (3) | — |
| | — |
| | 243,675 |
|
| | | | | | | | | |
A.H. McElroy II | 59,000 |
| | 181,675 |
| (3) | — |
| | — |
| | 240,675 |
|
| | | | | | | | | |
| | | | | | | | | |
(1) The values reflect grant date fair value of awards at $35.89 per share granted on May 16, 2017. Compensation costs are recognized over the requisite service period. See also, the discussion of assumptions made in valuing these awards in the notes to the Company’s financial statements. |
(2) Elected to the Board of Directors on May 16, 2017. Director's fees pro-rated based upon election date. As of December 31, 2017, 5,062 shares associated with restricted stock awards were outstanding. Non-qualified options have not been granted during his term as a Board member. |
(3) As of December 31, 2017, 10,124 shares associated with restricted stock awards were outstanding. Non-qualified options have not been granted during his term as a Board member. |
(4) As of December 31, 2017, 8,437 shares associated with restricted stock awards were outstanding. Non-qualified options have not been granted during her term as a Board member. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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Section 16(a) of the Exchange Act, as amended, requires the Company’s officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file
reports of securities ownership and changes in such ownership with the SEC, and SEC rules require such persons to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of copies of all Section 16(a) forms furnished to us during our most recent fiscal year, the Company believes that all Section 16(a) filing requirements were met during 2017.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has selected Grant Thornton LLP (“GT”) as our independent registered public accounting firm for the fiscal year ending December 31, 2018.2021. Representatives of GT are expected to be present at the Annual Meeting with the opportunity to make a statement if they so desire and to be available to respond to appropriate questions.
Fees and Independence
Our Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax and other services performed by the independent auditor. The following services were authorized by the Audit Committee.
Audit Fees. GT billed us an aggregate of $456,750$497,175 and $464,625$484,500 for professional services rendered for the audits of our financial statements for the years ended December 31, 20172020 and 2016,2019, respectively, and reviews of the related quarterly financial statements.
All Other Fees. No other fees were billed by GT to us during 20172020 or 2016.2019.
Annual Ratification of Auditor. Our stockholders ratify the selection of our independent registered public accounting firm on an annual basis.
The Audit Committee of the Board of Directors has determined that the provision of services by GT described above is compatible with maintaining GT’s independence as our registered public accounting firm.
Audit Committee Report
To the Board of Directors of AAON, Inc.
The Audit Committee oversees AAON's financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. We have reviewed and discussed with management and with the independent auditors the Company’s audited financial statements as of and for the year ended December 31, 2017.2020.
We have discussed with the independent auditors the matters required to be discussed by Auditing Standard No. 16,1301, Communications with Audit Committees, issued by the Public Company Accounting Oversight Board.
We have received, reviewed and discussed with Grant Thornton LLP the written disclosures and communications from them required by the Public Company Accounting Oversight Board regarding their independence.
Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2020.
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| |
Audit Committee of the Board of Directors: |
|
JackCaron A. Lawhorn, Chair |
Angela E. Short, ChairmanKouplen, Member |
Paul K. Lackey, Jr., Member |
Angela E. Kouplen, Member |
Stephen O. LeClair, Member |
The information contained in this Audit Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates such information by reference in any such filing.
OVERVIEW OF PROPOSALS
This Proxy Statement contains three proposals requiring stockholder action. action:
•Proposal No. 1 requests the election of three directors to the Board of Directors.
•Proposal No. 2 seeks to (i) increase the shares eligible for issuance under requests that stockholders vote on a non-binding advisory resolution approving the Company's 2016 Incentive Plan and (ii) establish a maximum number of common shares that may be granted as restricted stock and restricted stock units under the 2016 Incentive Plan. executive compensation.
•Proposal No. 3 requests that stockholders vote to ratify the selection of Grant Thornton LLP as our independent registered public accounting firm for the year ending December 31, 2018.2021.
Each proposal is discussed in more detail in the following pages.
PROPOSAL NO. 1
Election of Directors
The names of Norman H. Asbjornson, Gary D. Fields and Angela E. Kouplen, the current members of the Class III Directors standing for re-election, whose terms expire at the 20182021 Annual Meeting, have been placeplaced in nomination for re-election to the Board for terms ending in 2021,2024, and the persons named in the proxy will vote for their election. Each of Ms. Kouplen, Mr. Asbjornson, and Mr. Fields and Ms. Kouplen have consented to being named in this Proxy Statement and to serve if elected.
The biographical information for all director nominees is contained in the "Directors" section above.
If any nominee becomes unavailable for any reason, the shares represented by the proxies will be voted for such other person, if any, as may be designated by the Board of Directors. However, management has no reason to believe that any nominee will be unavailable.
Vote Required
A nominee for director will be elected if a majority of the stockholders voting on the nominee's election vote in favor such nominee's election.
Recommendation of the Board:
The Board unanimously recommends that stockholders vote FOR the election of directors Asbjornson, Fields and Kouplen.
PROPOSAL NO. 2
ApprovalAdvisory Vote on Executive Compensation
Our Board is asking our stockholders to vote, on an advisory basis, to approve the compensation of our NEOs, as disclosed in this Proxy Statement in accordance with SEC rules and Section 14A of the 2018 AmendmentExchange Act. We recognize the interest our stockholders have in the compensation of our executives and this proposal gives us the opportunity to obtain the AAON, Inc. 2016 Long-Term Incentive Planviews of stockholders on the effectiveness of our executive compensation program. This vote is not intended to address any specific item of compensation, but rather concerns the overall compensation of our NEOs, and the policies and practices described in this Proxy Statement. Because this vote is advisory, it is therefore not binding on the Company. However, the Board and the Compensation Committee value the opinions of our stockholders, and will consider our stockholders’ views, including what, if any, actions may be appropriate to address any concerns identified through the advisory vote.
The BoardAt the Company’s 2011, 2014, 2017 and 2020 annual meetings of Directorsstockholders, approximately 99.26%, 89.92%, 96.30% and 95.85% of the Company (the “Boardvotes cast, respectively, supported the Company’s say-on-pay proposal. As noted above, our Board has decided to conduct say-on-pay votes every year following our 2020 Annual Meeting so that our stockholders may express their views on our executive compensation program on an annual basis.
In accordance with the requirements of Directors”) is seekingSection 14A of the approvalExchange Act and the related rules of the SEC, the Board recommends that the stockholders approve the following resolution at the Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the 2018 Amendment to the AAON, Inc. 2016 Long-Term Incentive Plan, which was adopted by the Board of Directors on March 16, 2018, subject to stockholder approval (hereinafter called the “2018 Amendment”). The AAON, Inc. 2016 Long-Term Incentive Plan (hereinafter called the “2016 Incentive Plan”) was originally adopted by the Board of Directors on February 24, 2016, and was approved bynamed executive officers, as disclosed in the Company’s stockholders on May 24, 2016.
Under the 2016 Incentive Plan, the Company initially reserved a total of 3,839,702 common shares for issuance pursuant to awards. The 2018 Amendment (i) increases the number of shares of common stock available for issuance pursuant to awards under the 2016 Incentive Plan, and (ii) establishes a maximum number of common shares that may be granted as restricted stock and restricted stock units under the 2016 Incentive Plan. The Board of Directors believes that operation of the 2016 Incentive Plan is important in attracting and retaining the services of key employees, contractors, and non-employee directors in a competitive labor market, which is essential to the Company’s long-term growth and success. It is the judgment of the Board of Directors that the 2018 Amendment is in the best interest of the Company and its stockholders.
A copy of the 2018 Amendment and the 2016 Incentive Plan is included as Annex A and Annex B, respectively, to this Proxy Statement. Described below is a summary of certain key provisions of the 2018 Amendment and the 2016 Incentive Plan, each of which is qualified in its entirety by reference to the full text of the 2018 Amendment and the 2016 Incentive Plan, respectively.
Summary of the 2018 Amendment
The 2018 Amendment increases the number of common shares available for issuance pursuant to awards under the 2016 Incentive Plan by 2,550,298 shares, to a total of 6,390,000 common shares. In addition, the 2018 Amendment limits the number of common shares that may be granted as restricted stock and restricted stock units to ten percent of the total common shares available for issuance under the 2016 Incentive Plan.
Description of the 2016 Incentive Plan
Purpose. The purpose of the 2016 Incentive Plan is to provide an incentive for employees, directors and certain consultants and advisors of the Company or its subsidiaries to remain in the service of the Company or its subsidiaries, to extend to them the opportunity to acquire a proprietary interest in the Company so that they will apply their best effortsStatement for the benefit2021 Annual Meeting of the Company, and to aid the Company in attracting able persons to enter the service of the Company and its subsidiaries.
Effective Date and Expiration. The 2016 Incentive Plan was adopted by the Board of Directors on February 24, 2016, subject to and conditioned upon stockholder approval of the 2016 Incentive Plan. The 2016 Incentive Plan became effective on May 24, 2016, which was the date of stockholder approval of the 2016 Incentive Plan (the “Effective Date”). Unless sooner terminated by the Board of Directors, the 2016 Incentive Plan will terminate and expire on the tenth anniversary of the Effective Date. No award may be made under the 2016 Incentive Plan after its expiration date, but awards made prior thereto may extend beyond that date.
Share Authorization. Subject to certain adjustments, the number of the Company’s common shares that may be issued pursuant to awards under the 2016 Incentive Plan is 3,839,702 shares (which is equal to 3,400,000 shares plus the number of shares that were subject to outstanding awards (the “Prior Plan Awards”) grantedStockholders pursuant to the AAON, Inc. Long-Term Incentive Plan, which was originally adopted at the May 22, 2007 annual meeting of stockholders and amended through the 2014 annual meeting of stockholders). If the 2018 Amendment is approved by the Company’s stockholders, the total number of common shares that may be issued pursuant to awards will be increased to 6,390,000 shares. One hundred percentcompensation disclosure rules of the available shares may be delivered pursuant to incentive stock options and, if the 2018 Amendment is approved by the Company’s stockholders, the maximum number of shares of restricted stock and restricted stock units that may be granted under the Plan will be ten percent of the available shares. Subject to certain adjustments, with respect to any participant who is an officer of the Company subject to Section 16 of the Securities Exchange Act of 1934 or a “covered employee” as defined in Section 162(m)(3) of the Code, the maximum number of common shares with respect to which stock options or stock appreciation rights may be granted to such participant is 350,000 common shares. The 2016 Incentive Plan also provides that no more than 5% of the common shares that may be issued pursuant to an award under the 2016 Incentive Plan may be designated as “Exempt Shares.” “Exempt Shares” are awards that are granted with more favorable vesting provisions than the vesting provisions otherwise required by the 2016 Incentive Plan.
Shares to be issued may be made available from authorized but unissued common shares, common shares held by the Company in its treasury, or common shares purchased by the Company on the open market or otherwise. During the term of the 2016 Incentive Plan, the Company will at all times reserve and keep enough common shares available to satisfy the requirements of the 2016 Incentive Plan. If an award under the 2016 Incentive Plan (or a Prior Plan Award) is cancelled, forfeited or expires, in whole or in part,
the shares subject to such forfeited, expired or cancelled award may again be awarded under the 2016 Incentive Plan.
Awards that may be satisfied either by the issuance of common shares or by cash or other consideration shall be counted against the maximum number of common shares that may be issued under the 2016 Incentive Plan only during the period that the award is outstanding or to the extent the award is ultimately satisfied by the issuance of common shares. Common shares otherwise deliverable pursuant to an award that are withheld upon exercise or vesting of an award for purposes of paying the exercise price or tax withholdings shall be treated as delivered to the participant and shall be counted against the maximum number of available shares. Awards will not reduce the number of common shares that may be issued, however, if the settlement of the award will not require the issuance of common shares. Only shares forfeited back to the Company, shares cancelled on account of termination, or expiration or lapse of an award, shall again be available for grant of incentive stock options under the 2016 Incentive Plan, but shall not increase the maximum number of shares described above as the maximum number of common shares that may be delivered pursuant to incentive stock options.
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Administration.
PROPOSAL NO. 3
The Audit Committee has selected the firm of Grant Thornton LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2018.2021. The Board is submitting the selection of Grant Thornton LLP for ratification at the Annual Meeting. The submission of this matter for approval by stockholders is not legally required, but the Board and the Audit Committee believe the submission provides Stockholders an opportunity to communicate with the Board and Audit Committee concerning an important component of corporate governance. If the stockholders do not ratify the selection of Grant Thornton LLP, the Audit Committee may reconsider the selection of that firm as the Company's auditors.
Representatives of Grant Thornton LLP will be present at the Annual Meeting, will have the opportunity to make a statement and will be available to respond to appropriate questions posed by stockholders.