Washington, D.C. 20549
The Board is divided into three classes. Directors serve for staggered three-year terms. The Board believes that the staggered election of directors helps to maintain continuity and ensures that a majority of directors at any given time will have in-depth knowledge of the Company.
Collectively, the Board has high levels of competence and experience in a variety of areas, including manufacturing, engineering, finance, international business, management, law, risk management, strategic business development and the global automotive industry. A summary of the principal occupation, professional background and specific knowledge and expertise that qualify each nominee and returning director to serve on our Board is provided in the following pages of this proxy statement.
Class III — Directors to hold office until the 2020 Annual Meeting of Stockholders
RETURNING DIRECTORS
Class I — Directors to hold office until the 20182021 Annual Meeting of Stockholders
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| David C. Dauch | Chairman of the Board & Chief Executive Officer, AAM |
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| | Current and Past Positions at AAM | Key Qualifications and Experience |
| since August 2013
since September 2012
– President & Chief Executive OfficerSeptember 2012 - August 2015
– President & Chief Operating Officer2008 - 2012
– Various positions of increasing responsibility1995 - 2008 | Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. Dauch should serve on AAM's Board: his leadership experience as an officer of AAM since 1998; the breadth of his management experience within, and knowledge of, AAM's global operations; and his subject matter knowledge in the areas of innovation and technology, manufacturing, strategic planning and risk management. |
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| Age:54 | Other Company Directorship | Current Directorships (non-profit) and Leadership Roles |
| Director Since: | – Amerisure Companies since 2014 |
| 2013 (Chairman) | Previous Directorship | – Business Leaders for Michigan– Detroit Regional Chamber– Great Lakes Council Boy Scouts of America– Boys & Girls Club of Southeastern Michigan– National Association of Manufacturers (NAM)– Original Equipment Suppliers Association (OESA)– Miami University Business Advisory Council– General Motors Supplier Council– FCA NAFTA Supplier Advisory Council |
| 2009 | – Horizon Global CorporationJune 2015 - May 2018 |
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| | DAVID C. DAUCH
Age 52
David C. Dauch isWilliam L. Kozyra
| President & Chief Executive Officer, of AAM, a position he has held since September 2012. Mr. Dauch was appointed Chairman of the Board in August 2013. From September 2012 through August 2015, Mr. Dauch served as AAM's President & CEO. Prior to that, Mr. Dauch served as President & Chief Operating Officer (2008 - 2012) and held several other positions of increasing responsibility from the time he joined AAM in 1995. Prior to joining AAM, Mr. Dauch held several positions at Collins & Aikman Products Company, where he received the President’s Award for leadership and innovation. Mr. Dauch also served on the Collins & Aikman Board of Directors from 2002 to 2007. Presently, he serves on the boards of Business Leaders for Michigan, the Detroit Economic Club, the Detroit Regional Chamber, the Great Lakes Council Boy Scouts of America, the Boys & Girls Club of Southeast Michigan, the National Association of Manufacturers (NAM), the Original Equipment Suppliers Association (OESA), Amerisure Mutual Holdings, Inc. and the Amerisure Companies (since December 2014) and Horizon Global Corporation (since June 2015). Mr. Dauch also serves on the Miami University Business Advisory Council and the General Motors Supplier Council. Mr. Dauch’s leadership of AAM’s global business and operations provides the Board with strategic vision and insight that are vital to AAM’s strategic plans for the future. | | Director since
2009
TI Fluid Systems plc |
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| | Current and Past Positions | Key Qualifications and Experience |
| – President & Chief Executive OfficerTI Fluid Systems plc (TI Automotive) (fluid storage, carrying and delivery systems) since 2008
– President & Chief Executive OfficerContinental AG North America 1998 - 2008
– Member of Executive BoardContinental AG (DAX) 2006 - 2008
– Vice President & General ManagerBrake Products Division of Bosch Braking Systems 1995 - 1997 | Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. Kozyra should serve on AAM's Board: his leadership experience as an officer of TI Automotive since 2008; the breadth of his international experience with global companies in the automotive industry; and his subject matter knowledge in the areas of engineering, manufacturing, innovation and technology, strategic planning and risk management. |
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| Age:61 | Other Public Company Directorships | Current Directorships (non-profit) and Leadership Roles |
| Director Since: 2015 |
| Committees: | – TI Fluid Systems plc (TI Automotive)since 2008 | – General Motors Supplier Council– Ford Motor Company Top 100 Supplier Forum– Notre Dame Preparatory School– Boy Scouts of America, Detroit– University of Detroit Alumni Council– Society of Automotive Engineers |
| Compensation |
| Nominating/Corp Gov |
| Technology |
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| | WILLIAM L. KOZYRA
Age 59
Mr. Kozyra is Chairman of the Board and Chief Executive Officer of TI Automotive Ltd., a global supplier of automotive fluid storage, carrying and delivery technology. He has served as TI Automotive's CEO since June 2008. Prior to that, Mr. Kozyra was President and CEO of Continental AG North America for 10 years. He was also a member of the Executive Board, Continental AG (DAX), Hanover, Germany, with responsibility for Continental AG's NAFTA businesses. Previously, at ITT Automotive, he served as Vice President and General Manager, Brake and Chassis Systems North America. Prior to joining ITT Automotive, he was Vice President and General Manager of Bosch Braking Systems' Brake Products Division. Mr. Kozyra is a member of the Board of Directors of the Motor & Equipment Manufacturers Association (MEMA), the General Motors Supplier Council, the Ford Motor Company Top 100 Supplier Forum, the Board of Trustees of the Notre Dame Preparatory School, the Boy Scouts of America Executive Board in Detroit, Michigan, the Board of Advisors of the University of Detroit and the University of Detroit Alumni Council and the Society of Automotive Engineers. Mr. Kozyra has 36 years of experience in the global automotive industry and demonstrated leadership skills and technical background in the areas of manufacturing, engineering, quality systems and sales, all of which are aligned with AAM's business objectives.
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| Peter D. Lyons | PETER D. LYONS
Age 61
Mr. Lyons, an attorney, is a partner andU.S. Regional Managing Partner, - Americas of Freshfields Bruckhaus Deringer US LLP which he joined in September 2014. Based in the New York office of Freshfields, Mr. Lyons represents leading U.S. and global companies in acquisitions and sales of public and private companies, asset acquisition and disposition transactions, and joint ventures. Prior to joining Freshfields, Mr. Lyons was a partner with Shearman & Sterling LLP and a member of the Mergers & Acquisitions Group based in New York, New York. Mr. Lyons practiced law at Shearman & Sterling for 35 years. Mr. Lyons has been recognized and recommended as a Mergers & Acquisitions practitioner by Chambers Global, Chambers USA, The Legal 500 US, and IFLR1000. Mr. Lyons received his law degree from Georgetown University Law Center and his Bachelor of Arts degree from the University of Virginia. From 2003 to 2014, while a partner at Shearman & Sterling, Mr. Lyons served as lead counsel to AAM and as a key advisor to the Board on legal matters. Mr. Lyons has extensive experience advising global companies and corporate boards as well as highly recognized subject matter expertise in mergers and acquisitions and other corporate transactions, corporate governance and other areas of significance to the Board.
| | Director since 2015 |
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| | Current and Past Positions | Key Qualifications and Experience |
| – Attorney, U.S. Regional Managing PartnerFreshfields Bruckhaus Deringer US LLP New York, NY since September 2014
– Partner, Mergers & Acquisitions Group Shearman & Sterling LLPNew York, NY 1979 - 2014
| Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. Lyons should serve on AAM's Board: his experience as an attorney of a major law firm since 1979; the breadth of his experience in advising global businesses on complex legal matters and transactions; and his subject matter knowledge in the areas of corporate governance, mergers and acquisitions, international business and risk management. |
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| Age: 63 | | |
| Director Since: 2015 | |
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Corporate Governance Highlights
Class II— DirectorsAt AAM, we believe that strong corporate governance contributes to hold office until the 2019 Annual Meeting of Stockholders
long-term shareholder value. We are committed to sound governance practices, including those described below.
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| Independence | | Accountability |
– 9 of 10 independent directors (except our CEO)– Lead Independent Director– Committees comprised of only independent directors (except Executive Committee)– Independent directors meet regularly in executive session without management present | | – Proactive shareholder engagement program– Majority vote for directors In uncontested elections,– Annual Board and committee evaluations– Commitment to Board refreshment |
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| Sound Practices | | Risk Management |
– In 2019, the Board adopted a policy to include women and minority candidates in the selection process– In 2019, the Board assigned oversight responsibility for AAM's sustainability program to the Nominating/ Corporate Governance Committee– Director orientation and education– Stock ownership requirements for directors and executive officers– Hedging or pledging AAM stock is prohibited | | – Active Board oversight of AAM's overall risk management structure– Individual Board committees oversee risks related to their areas of responsibility– AAM has robust risk management processes throughout the company– The Board and its committees receive regular updates from management on top enterprise risks, and the steps management has taken or will take to mitigate these risks |
Active Engagement with our Shareholders
Our Board and management team greatly value the opinions and feedback of our shareholders, which is why we have proactive, ongoing engagement with our shareholders throughout the year focused on corporate governance, executive compensation and corporate responsibility. This outreach is in addition to the ongoing communication between our shareholders and our Chairman & Chief Executive Officer, Vice President & Chief Financial Officer and Investor Relations team on AAM's financial performance and strategic objectives.
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| Why we engage |
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| Provide transparency into our business strategy, corporate governance practices and executive compensation programs | Determine which issues are important to our shareholders and communicate each others' views on those topics | Identify emerging issues that may impact our business and influence our practices |
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| How we engage |
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| Investor Communication Program | | ELIZABETH A. CHAPPELLWe provide institutional investors with many opportunities to provide feedback to senior management by participating in conferences, one-on-one and group meetings, investor visits to our manufacturing facilities and technical centers, and day-to-day interactions with individual investors throughout the year.
Age 59
Ms. Chappell has served as PresidentIn June 2018, AAM hosted an Investor Day at the New York Stock Exchange where our CEO and Chief Executive Officer of the Detroit Economic Club since 2002. Previously, she served as Executive Vice President, Corporate Communications & Investor Relations for Compuware Corporation. From 1995 to 2000, Ms.Chappell was President and Chief Executive Officer of a consulting firm she founded, The Chappell Group, Inc. For 16 years, Ms. Chappell held executive positions at AT&T. From 1999 to 2009, Ms. Chappell servedsenior management gave an update on the Board of Directors of the Handleman Company. She also serves on a number of civic boards, including the Michigan State University Capital Campaign, Citizens Research Council, Detroit Regional Chamber, the United Way Board and Tocqueville Committee, and the Charter One Regional Advisory Board (Midwest). Ms. Chappell is a former board member of the Karmanos Cancer Institute, Michigan Economic Growth Authority and Hospice of Michigan. Ms. Chappell’s demonstrated leadership skills, entrepreneurialour business experience and service on various boards enhance her contributions to the Board in the areas of investor relations, community outreach and corporate citizenship, marketing and communications, executive compensation and strategic business development.plans.
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| Proactive Shareholder Outreach Program | | As part of our annual shareholder outreach program, we also engage with shareholders in conference calls or meetings outside the proxy season. These exchanges, which we initiate, cover our executive compensation program, risk management, ESG, strategic planning and corporate governance practices. Soliciting shareholder feedback is a key component of this program, which we do at least annually. As appropriate, we also engage with shareholders during proxy season.
Our Board members, CFO and Investor Relations Director sinceparticipate in these outreach meetings. 2004
Our shareholder outreach activities during 2018 - 2019 are described in the Proxy Summary and the Compensation Discussion & Analysis. |
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| Board Involvement | | JOHN F. SMITH
Age 66
Mr. Smith is principalThe Chair of Eagle Advisors LLC, a consulting firm that specializesour Compensation Committee has participated in strategy developmentcertain shareholder meetings. Our CFO conveys shareholders' feedback to the full Board and performance improvement. From 2000 to 2010, Mr. Smith held positions of increasing responsibility with General Motors Corporation in sales and marketing, product planning and corporate strategy, most recently as Group Vice President,the Compensation Committee or Nominating/ Corporate Planning and Alliances. During his 42-year career in the automotive industry, Mr. Smith also served as General Manager of Cadillac Motor Car, President of Allison Transmission, and Vice President, Planning at General Motors International Operations in Zurich, Switzerland. Mr. Smith servesGovernance Committee, depending on the boards of CEVA Holdings LLC (where he serves on the Executive Committee) and Covisint Corporation (where he serves as Chairman). Mr. Smith also serves as an advisor to VNG.CO, a developer of compressed natural gas refueling stations, Enginetics LLC, a fuel-injection technology start-up company, and Arnold Magnetics. Mr. Smith is a membersubject of the National Advisoryfeedback. The Board also receives any feedback we obtain from proxy advisory firms, such as ISS and Glass Lewis, as part of Boy Scouts of America. He served on the boards of Smith Electric Vehicles Corp. (June 2012 - December 2013), Plasan Carbon Composites (December 2013 - December 2014) and Arnold Magnetics (January 2015 - September 2016). Mr. Smith's extensive experience in manufacturing, finance, business development, international operations, sales and marketing, product development and mergers and acquisitions is aligned with AAM's key business objectives, including continued global business growth and diversification.our outreach program.
| | Director since 2011The Board gives management feedback on key aspects of AAM's investor relations communication plan and shareholder outreach program. |
Merger with Metaldyne Performance Group Inc.
As previously disclosed, on November 3, 2016, the Company, Alpha SPV I, Inc. (Merger Sub) and Metaldyne Performance Group Inc. (MPG) entered into an Agreement and Plan of Merger (the merger agreement). Pursuant to the merger agreement, upon the terms and subject to the conditions set forth in the merger agreement, Merger Sub will merge into MPG, with MPG as the surviving entity (the merger). As a result of the merger, MPG will become a wholly-owned subsidiary of the Company.
The merger agreement requires, among other things, that, prior to the effective time of the merger, AAM will (1) increase the size of the Board to 11 members, (2) appoint to a different class of the Board three individuals designated by American Securities (AS, and such individuals, the AS designees) and (3) cause one AS designee to be appointed to each committee of the Board, in each case, effective as of the effective time of the merger. The appointment of each AS designee to the Board will be subject to such designee satisfying AAM’s qualification requirements for directors and, with respect to each committee appointment, will be subject to independence and other requirements for such committees set by the New York Stock Exchange (NYSE) and applicable law. The AS designees are current MPG directors George Thanopoulos, Kevin S. Penn and Loren S. Easton.
The Company currently expects to close the merger in the first half of 2017, subject to the satisfaction of the closing conditions set out in the merger agreement. If the merger closes on the day of or after the annual meeting of stockholders on May 4, 2017, the AS designees will be appointed to the Board as described above. If the merger closes before the annual meeting, the AS designees will be appointed to the Board as described above, but the term of the AS designee in Class III would end as of the annual meeting. In that case, the Board expects to immediately reappoint such AS designee to serve the new term of a Class III director. The AS designees in Classes I and II will stand for re-election upon the expiration of their terms in 2018 and 2019, respectively.
For more information regarding the merger, you are urged to read the joint proxy statement/prospectus dated March 6, 2017, which AAM and MPG filed with the Securities and Exchange Commission (SEC) on the same date and first mailed to each company's stockholders on or about March 7, 2017. You are urged to read the joint proxy statement/prospectus (including any amendments or supplements thereto) and other documents filed by AAM or MPG with the SEC in connection with the merger as these documents contain (or will contain) important information. Those documents, as well as AAM's other public filings with the SEC, may be obtained without charge at the SEC’s website at http://www.sec.gov and at our website at http://www.aam.com.
CORPORATE GOVERNANCE
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines that meet or exceed the requirements of the NYSE listing standards. AAM’s Corporate Governance Guidelines are available on our website at http://investor.aam.com.
Director Independence
AAM’s Corporate Governance Guidelines provide that at least a majority of the members of the Board meet the independence criteria of the NYSE listing standards. Currently, seven of our eight directors are independent from the Company. Only David C. Dauch, who serves as AAM's Chief Executive Officer, is not independent due to his employment with AAM.
The Board has establishedadopted Director Independence Guidelines to assist in determining the independence of our directors for purposesunder the independence standards of the NYSE independence standards.New York Stock Exchange (NYSE). The Director Independence Guidelines are included in AAM’s Corporate Governance Guidelines, which are available on our website at http://investor.aam.com. The Board annually reviews and determines, on the recommendation of the Nominating/Corporate Governance Committee, whether any director has a material relationship with the Company that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. No director qualifies as independent unless the Board determines that the director has no direct or indirect material relationship with the Company.
As a resultIn February 2019, the Board reviewed the independence of this evaluation,each then-sitting director, applying the independence standards set forth in our Corporate Governance Guidelines. Based on these independence standards and the relevant facts and circumstances, the Board determined that the following nominees and returning directors have no director other than Mr. Dauch, our CEO, has a material relationshipsrelationship with AAM and are independent: Elizabeth A. Chappell, William L. Kozyra, Peter D. Lyons, James A. McCaslin, William P. Miller II, John F. Smith and Samuel Valenti III.
In making these independence determinations, the Board considered Ms. Chappell’s position as President & CEOthat each director other that Mr. Dauch is independent. Mr. Dauch is not independent because of the Detroit Economic Club, in light of the sponsorship fees AAM pays to this non-profit organization. The annual fees paid by AAM to the Detroit Economic Club are significantly below the threshold amount established under the NYSE independence standards and our Director Independence Guidelines, which is the greater of two percent of the outside entity’s annual gross revenues or $1 million.his employment with AAM.
Board Leadership Structure
The Board's current leadership structure includesOur Board consists of a combined Chairman and CEO role, complemented with a leadLead Independent Director chosen from our independent director. In August 2013,directors. This structure, along with our sound governance practices, provides effective and independent oversight of the Company.
The Chairman and CEO role brings to the Board appointed David C. Dauch asthe experience and expertise of both the Company and the automotive industry. The skills and experience of our CEO are well-suited for the role of Chairman, putting the Board in the best position to identify and assess key industry drivers and important changes in the competitive landscape so that the Board can develop effective strategies. In light of the Board.opportunities and challenges facing
AAM and the importance of the Chairman role, the Board believes that it isshareholders are best served by having Mr. Dauch serve in the best interest of the Company to combine the rolescombined role of Chairman and CEO at this time because it provides the Company with unified leadership and direction. The Board believes the Company's CEO is best situated to serve as Chairman because he is the director most familiar with the Company's business and industry, and is in a position to effectively identify strategic priorities and lead the discussion and execution of strategy. CEO.
While the Company'sour independent directors bring experience, oversightdiverse experiences and expertise from various perspectives outside the Company, the CEO'sAAM, Mr. Dauch's in-depth knowledge of our business enables him to identify important areas of focus for the Board and effectively recommend appropriate agendas. The Board believes that the combined role of Chairman and CEO facilitates information flow between management and the Board, provides clear accountability and promotes efficient decision making, all of which are essential to effective governance.
Lead Independent Director
Our Board leadership structure is further enhanced by a Lead Independent Director. The Lead Independent Director plays an Independent Lead Director. In April 2014, the Board selected Mr. McCaslin to serveimportant role in this role. The Independent Lead Director's responsibilities are to:
preside at executive sessions of the independent directors, which are held at the end of each scheduled Board meeting;
call special executive sessions of independent directors, as appropriate;
serve as chair of the Nominating/Corporate Governance Committee;
serve as liaison betweenour governance structure, working with both the independent directors and the Chairman & CEO;
informCEO to ensure the Chairman & CEO of issues arising from executive sessions of the independent directors;Company is well positioned with sound strategy, robust risk management and effective governance. The Lead Independent Director's key responsibilities are to:
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| – | serve as liaison between the independent directors and the Chairman & CEO; |
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| – | with Board approval, retain outside advisors and/or consultants who report directly to the full Board on matters of interest to the Board. |
Mr. Valenti currently serves as Lead Independent Director.
Board Meetings
Under AAM's by-laws, regular meetings of the Board are held at least quarterly. Our practice is to schedule certain Board meetings at an AAM manufacturing or technical center so our directors have an opportunity to observe different aspects of our business first-hand. During 2018, the Board held four regularly scheduled meetings.
Directors are expected to attend all Board meetings, meetings of committees on which they serve, and the annual meeting of stockholders. Directors are expected to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. All continuing directors attended 100% of the Board and applicable committee meetings during 2018, except one director missed one Board meeting and another missed two committee meetings that were held on the same day. Overall attendance at Board and committee meetings was 97%. All directors then in office attended the 2018 annual meeting of stockholders. No director attended less than 88% of Board and committee meetings on which he or she served in 2018.
Board Committees
The Board has delegated some of its authority to five committees: the Executive Committee, the Audit Committee, the Compensation Committee, the Nominating/Corporate Governance Committee and the Technology Committee. Each of the Audit, Compensation and Nominating/Corporate Governance Committees has adopted a charter that complies with current NYSE rules relating to corporate governance. Copies of these committee charters are available at http://investor.aam.com.
The Board approved the rotation of certain directors' committee memberships effective January 2019. The Board believes that periodic rotation of committee membership is generally desirable to ensure that committees regularly benefit from diverse views.
With respect to the Audit Committee, the Board appointed Mr. Parker and Ms. Pierce as new members based on each of their professional experience and expertise. Based on Mr. Parker's prior experience as a chief financial officer, the Board determined that Mr. Parker is a financial expert according to SEC rules. In addition, the Board considered Mr. Parker's concurrent service on the audit committees of three other public companies since his retirement from Harman International Industries, Inc. in March 2017. The Board concluded that, as a retiree, Mr. Parker's simultaneous service on the other audit committees would not impair his ability to effectively serve on AAM's Audit Committee. Mr. Parker has adequate time to fulfill his responsibilities as a member of the Audit Committee and our Board.
Committee membership as of March 21, 2019, the number of meetings held during 2018, and each committee's primary responsibilities are summarized below. Every committee other than the Executive Committee regularly reports on its activities to the full Board.
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| Audit Committee |
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2018 Meetings: 4
Members:
William P. Miller II (Chair) * Herbert K. Parker* Sandra E. Pierce John F. Smith* Samuel Valenti III
*Financial Expert | – Oversees the independent auditors' qualifications, independence and performance |
– Oversees the quality and integrity of our financial statements |
– Oversees the performance of our internal audit function |
– Discusses with management the Company's risk assessment and risk management framework |
– Approves audit and non-audit services provided by the independent auditors |
| – Oversees the Company's hedging and derivatives practices |
| *Financial Expert | – Provides oversight of the Company's ethics and compliance programs |
| – Oversees our cybersecurity risk management program and receives quarterly reports by our Chief Information Officer |
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| Compensation Committee |
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2018 Meetings: 5
Members: James A. McCaslin (Chair) William L. Kozyra Peter D. Lyons Sandra E. Pierce Samuel Valenti III | – Recommends the CEO's compensation to the Board and establishes the compensation of other executive officers |
– Recommends incentive compensation and equity-based plans to the Board |
– Approves executive officer compensation to ensure that is designed to support achievement of the Company's business strategy and objectives while considering competitive market practices and shareholder interests |
– Recommends non-employee director compensation to the Board |
– Oversees management's risk assessment of the Company's policies and practices regarding compensation of executive officers and other associates |
| – Evaluates and approves corporate goals and objectives for executive officer compensation and evaluates performance in light of these criteria |
| – Oversees the preparation of the Compensation Discussion and Analysis (CD&A) and produces a Committee report for inclusion in our annual proxy statement |
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| Nominating/Corporate Governance Committee |
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2018 Meetings: 4
Members: Elizabeth A. Chappell (Chair) William L. Kozyra Peter D. Lyons James A. McCaslin Herbert K. Parker Samuel Valenti III
| – Identifies qualified individuals to serve on the Board and committees |
– Reviews our Corporate Governance Guidelines and Code of Business Conduct and recommends changes as appropriate |
– Oversees succession planning for executive officers and other key executive positions and supports the Board's succession/contingency planning process for the CEO |
– Oversees evaluation of the Board and its committees |
– Reviews committee charters and recommends any changes to the Board |
– Oversees our sustainability program policies, strategies and performance and reviews sustainability/corporate responsibility matters with management |
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| Technology Committee |
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2018 Meetings: 3
Members: John F. Smith (Chair) Elizabeth A. Chappell William L. Kozyra James A. McCaslin William P. Miller II | – Advises the Board and management on the Company's strategy for innovation and technology |
– Maintains awareness of market demands for technology advancements relative to product, processes and systems |
– Oversees and advises management regarding product, process and systems technologies |
– Reviews technology opportunities as potential ways to increase productivity, efficiency, quality and warranty performance and to support the Company's goals and objectives |
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| Executive Committee |
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2018 Meetings: 1
Members: David C. Dauch (Chair) James A. McCaslin Samuel Valenti III | – Acts on matters requiring Board action between meetings of the full Board |
– Has authority to act on certain significant matters, limited by our by-laws |
– All members other than Mr. Dauch are independent |
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Board Oversight of Risk Management
The Board directlybelieves that strong and through its committees, is responsible for overseeing the management of potential risks affecting the Company. In connection with our overalleffective internal controls and risk management process,processes are essential for achieving shareholder value. The Board has oversight for risk management with a focus on the Board regularly reviews information provided by senior management aboutmost significant risks facing the Company’sCompany, including strategic, operational, financial and compliance risks. The Board's risk oversight process builds upon management's risk assessment and mitigation processes, which include an enterprise risk management program, regular internal management disclosure and compliance committee meetings, a global ethics and compliance program and comprehensive internal audit processes.
risks. In addition, the chairs of each standing committeeThe Board implements its risk oversight function both as a full Board and through delegation to Board committees, which regularly report to the full Board. The Board has delegated the oversight of specific risks to Board committees that align with their functional responsibilities, as summarized in the table below.
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Responsible Party | Primary Areas of Risk Oversight |
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| Full Board | | Oversees overall risk management function and regularly receives reports from the chairs of individual Board committees on risk-related matters falling within each committee's oversight responsibilities. Also receives reports from management on particular risks facing the Company, including through the review of AAM's strategic plan. |
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| Audit Committee | | Monitors financial, operational, and compliance risks by regularly reviewing reports and presentations given by management, Internal Audit, Company advisors and the independent auditors.
Regularly reviews risk management practices and risk-related policies (for example, AAM's risk management process and cybersecurity strategy) and evaluates potential risks related to internal controls over financial reporting.
Oversees cybersecurity risk management and risk controls. Receives quarterly reports from our Chief Information Officer on AAM's cybersecurity program, including AAM's monitoring, auditing, implementation and communication processes, controls and procedures.
Monitors financial risks, including capital structure and liquidity risks, and reviews the policies and strategies for managing financial exposure and contingent liabilities. |
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| Compensation Committee | | Monitors potential risks related to the design and administration of our compensation plans, policies and programs, including our performance-based compensation programs, to promote appropriate incentives that do not encourage executive officers to take unnecessary and/or excessive risks. |
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| Nominating / Corporate Governance Committee | | Monitors potential risks related to our governance practices by, among other things, reviewing succession plans and performance evaluations of the Board and CEO and monitoring legal developments and trends regarding corporate governance practices. |
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| Technology Committee | | Monitors risks associated with the Company's product portfolio and our innovation and technology plans. |
Identifying and Evaluating Director Candidates
Our Board believes that the most effective oversight comes from a Board that represents a diverse range of experience and perspectives that provide the collective skills, qualifications and attributes necessary to provide sound governance. To carry out its responsibilities and set the appropriate tone at the top, our Board is focused on the activitiescharacter, integrity and qualifications of their respective committees, including matters related to risk.
The Audit Committee oversees management of financial risksits members, and receives regular reports from management on the Company’s overall risk managementBoard's leadership structure and processes. composition.
The Nominating/Corporate Governance Committee manages risks associatedreviews with corporate governance and management succession planning. The Compensation Committee oversees risks related to AAM’s compensation programs. The Technology Committee oversees risks related to AAM’s product, process and systems technology. Additional review or reporting of specific risks is conducted as appropriate or as requested by the Board the experience and attributes desired for effective governance in our changing industry and evaluates the current Board composition in light of these criteria. Although specific qualifications may vary from time to time, desired qualities and characteristics include:
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| – | high ethical character and shared values with AAM; |
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| – | high-level leadership experience and achievement at a policy-making level in business, educational or professional activities; |
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| – | breadth of knowledge of issues affecting AAM; |
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| – | special competencies, such as financial, technical, international business or other expertise, or industry knowledge; |
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| – | awareness of a director's vital role in AAM's good corporate citizenship and corporate image; and |
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| – | sufficient time and availability to effectively carry out a director's duties. |
The Board as a committee.whole should reflect a balance of knowledge, experience, skills, expertise and diversity that, when taken together, will enhance the quality of the Board’s deliberations and decisions.
Stockholder EngagementThe Board believes that diversity is an essential element of Board effectiveness. Consistent with this philosophy, the Board is committed to including in each search qualified candidates who reflect diverse backgrounds, including
diversity of gender and race. The Board formalized this commitment to diversity by amending its Corporate Governance Guidelines in February 2019.
Based on shareholder feedback and the Board's focus on Board diversity and refreshment, the Board enhanced the experience, leadership and diversity of the Board with the appointments of Herbert K. Parker and Sandra E. Pierce in November 2018. These appointments were the result of active recruitment of women and minority candidates. Ms. Pierce was identified as a candidate by Mr. Dauch and Mr. Parker was identified by another Board member.
In addition, for incumbent directors, the Nominating/Corporate Governance Committee and the full Board consider attendance, past performance on the Board and contributions to the Board and applicable committees. These factors also were taken into consideration in nominating Ms. Chappell, Mr. Parker and Mr. Smith for re-election as Class II directors, each with a term expiring on the date of the 2022 annual meeting of stockholders.
Our current Board, comprised of 10 directors, reflects the Board's commitment to identify, evaluate and nominate candidates who possess personal qualities, qualifications, skills, and diversity of backgrounds, and provide a mix of tenures that, when taken together, best serve our company and our shareholders. Diversity in tenure creates a good mix of perspectives. Longer-tenured directors bring a deep understanding of the Company and continuity as new directors join the Board. Newer members bring new perspectives, expertise and diversity as the Board is refreshed to address changes in the business over time.
The current mix of top skills and qualifications of our Board members and key features of the Board's composition are depicted below.
Director Qualifications, Skills and Experience
Board Composition
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| | | |
| | | | |
| Independence | Tenure | Age | Diversity |
| 90% | 7 | 64 | 30% |
| Independent | Average Years of Service | Average Age | Women or Minority |
Communicating with the Board
Our Board and management team value the opinions and feedback of our stockholders,shareholders, and we engage with stockholders throughout the year on a variety of issues, including our executive compensation program and corporate governance. StockholdersShareholders and other interested parties who wish to communicate with us on these or other matters may contact our Investor Relations Department by email at investorrelations@aam.com or by mail at One Dauch Drive, Detroit, Michigan 48211-1198 (corporate address).
StockholdersShareholders or other interested parties may communicate with the Board through the Secretary of AAM by e-mail at AAMBoardofDirectors@aam.com or by mail at the corporate address above. The Board has instructed the Secretary to review all such communications and to exercise his discretion not to forward correspondence to the Board that is inappropriate, such as advertising and business solicitations, routine business matters and personal grievances. However, any director may at any time requestinstruct the Secretary to forward any communication received by the Secretary on behalf of the Board.
Code of Business ConductCorporate Governance and ESG Policies
AAMBecause we believe corporate governance is integral to creating long-term shareholder value, our Board has adopted a Codecompany-wide corporate governance policies, which are periodically reviewed and revised as appropriate to ensure that they reflect the Board's corporate governance objectives.
Please visit the Governance section of Business Conduct that is designedour website (http://investor.aam.com/governance) to assist AAM associates, executive officerslearn more about our corporate governance practices and membersto access the following materials:
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| – | Corporate Governance Guidelines |
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| – | Code of Ethics for the CEO, CFO and other Senior Financial Executives (Code of Ethics) |
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| – | Charters of our Board Committees |
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| – | Code of Business Conduct |
A written copy of the Board in conducting AAM’s business with the highest standards of ethics and integrity. AAM has also adopted a Code of Ethics applicable to our CEO, CFO and other Senior Financial Executives (Code of Ethics). The Board annually reviews the Code of Business Conduct and makes updates as appropriate. AAM’s Code of Business Conduct and Code of Ethics are available on our website at http://investor.aam.com. A written copy also may be obtained by any stockholder without charge upon request to the AAM Investor Relations Department by email at investorrelations@aam.com or by mail at our corporate address above.
We recently published our first Sustainability Review, a baseline-setting document, which describes key focus areas of our ESG program. For more information on AAM's ESG program and policies, please visit www.aam.com/Sustainability.
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| |
| Compensation of Directors |
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|
| Compensation of Directors |
The Compensation Committee has authority to develop and recommend to the full Board the compensation policies and programs for non-employee directors. The Committee retains Meridian Compensation Partners LLC (Meridian) to advise when setting non-employee director compensation to ensure it is market-based, aligned with shareholder interests and consistent with our compensation principles.
AAM's compensation program for our non-employee directors is designed to meet the following objectives:
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| – | recognize the significant investment of time and expertise required of directors; |
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| – | align the directors' interests with the long-term interests of our shareholders; and |
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| – | ensure that the compensation of directors is well perceived by our shareholders. |
2018 Annual Retainer and Committee Chair Retainers
|
| | | |
| Annual retainer | $ | 110,000 |
|
| Committee chair annual retainer: | |
| Audit Committee chair | 20,000 |
|
| Compensation Committee chair | 15,000 |
|
| Other committee chair | 10,000 |
|
| Lead director annual retainer | 30,000 |
|
Non-employee director compensation for 2018 remained unchanged from 2017.
Annual Equity Grant
Non-employee directors serving on the Board on the date of the 2018 annual meeting received a grant of 8,711 restricted stock units (RSUs) with a grant date value of $125,000. The RSUs are payable in stock and vest in one year, unless vesting is accelerated upon death, disability or a change in control. Non-employee directors may elect to defer settlement of the RSUs until after termination of service from the Board.
Director Stock Ownership Guidelines
Our non-employee director stock ownership guidelines provide that each non-employee director should own shares with a value equal to at least five times the director annual cash retainer. Non-employee directors are expected to meet the guidelines within five years from the date of election to the Board or February 2017, whichever is later. For purposes of meeting these guidelines, shares owned directly, deferred RSUs and unvested RSUs are counted. Each non-employee director has met, or is on track to meet, these ownership guidelines. Current stock ownership of non-employee directors is shown in the Beneficial Stock Ownership table.
Anti-hedging and Anti-pledging policy
Non-employee directors are prohibited from entering into transactions that may result in a financial benefit if our stock price declines, or any hedging transaction involving our stock, including the use of financial derivatives, short sales or any similar transactions. Pledging of AAM stock is also prohibited.
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| |
| Compensation of Directors |
Director Compensation Table
Total 2018 compensation of our non-employee directors is shown below.
|
| | | | | | | | |
| Name | Fees Earned or Paid in Cash(1) ($) |
| Stock Awards(2) ($) |
| All Other Compensation(3) ($) |
| Total ($) |
|
| Elizabeth A. Chappell | 120,000 |
| 125,003 |
| 700 |
| 245,703 |
|
| William L. Kozyra | 110,000 |
| 125,003 |
| 700 |
| 235,703 |
|
| Peter D. Lyons | 110,000 |
| 125,003 |
| 800 |
| 235,803 |
|
| James A. McCaslin | 125,000 |
| 125,003 |
| 600 |
| 250,603 |
|
| William P. Miller II | 130,000 |
| 125,003 |
| 700 |
| 255,703 |
|
Herbert K. Parker(4) | 18,333 |
| — |
| — |
| 18,333 |
|
Sandra E. Pierce(4) | 9,167 |
| — |
| — |
| 9,167 |
|
| John F. Smith | 120,000 |
| 125,003 |
| 700 |
| 245,703 |
|
George Thanopoulos(5) | 36,667 |
| — |
| — |
| 36,667 |
|
| Samuel Valenti III | 140,000 |
| 125,003 |
| 1,400 |
| 266,403 |
|
| |
| (1) | Fees earned in 2018 for services whether paid currently in cash or deferred. Non-employee directors may elect to defer, on a pre-tax basis, a portion of their retainer and meeting fees and receive tax-deferred earnings (or losses) on the deferrals under AAM’s Executive Deferred Compensation Plan. |
| |
| (2) | Reflects the full grant date fair value of RSUs granted on May 3, 2018 calculated in accordance with FASB ASC 718 (without any reduction for risk of forfeiture) as determined by applying the assumptions used in our financial statements. The grant date fair value of equity awards was calculated using the closing market price of AAM common stock on the grant date ($14.35). See Note 10 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2018 for assumptions underlying the valuation of equity awards. |
| |
| (3) | The Company reimburses non-employee directors for travel and related out-of-pocket expenses in connection with attending Board, committee and stockholder meetings. From time to time, the Company invites spouses of non-employee directors to attend Company events associated with these meetings. The Company pays for spousal travel and certain other expenses and reimburses non-employee directors for taxes attributable to the income associated with this benefit. Amounts reflect reimbursement of taxes on this income. |
| |
| (4) | Mr. Parker joined the Board on November 1, 2018 and Ms. Pierce joined the Board on November 23, 2018. |
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| (5) | Mr. Thanopoulos resigned from the Board on May 7, 2018. |
As of December 31, 2018, each incumbent non-employee director had the number of outstanding RSUs (including those deferred) shown below. No options were outstanding as of December 31, 2018.
|
| | |
| Name | Restricted Stock Units Outstanding (#) |
|
| Elizabeth A. Chappell | 60,157 |
|
| William L. Kozyra | 23,573 |
|
| Peter D. Lyons | 27,585 |
|
| James A. McCaslin | 49,057 |
|
| William P. Miller II | 63,407 |
|
Herbert K. Parker (1) | — |
|
Sandra E. Pierce (1) | — |
|
| John F. Smith | 49,057 |
|
| Samuel Valenti III | 33,044 |
|
(1) Mr. Parker and Ms. Pierce did not receive a grant of RSUs.
|
| |
| Beneficial Stock Ownership |
|
|
| Beneficial Stock Ownership |
The following tables show the number of shares of AAM common stock beneficially owned by:
| |
| – | each person known to us who beneficially owns more than 5% of AAM common stock; |
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| – | each of our non-employee directors and nominees as of March 5, 2019; |
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| – | each of the named executive officers shown in the Summary Compensation Table; and |
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| – | all directors, nominees and executive officers as a group as of March 5, 2019. |
A beneficial owner of stock is a person who has voting power (the power to control voting decisions) or investment power (the power to cause the sale of the stock). All individuals listed below have sole voting and investment power over the shares (unless otherwise noted). The beneficial ownership calculation includes 111,742,180 shares of AAM common stock outstanding on March 5, 2019 (record date).
|
| | | | |
| | Shares Beneficially Owned |
| Percent of Shares Outstanding |
|
| Greater Than 5% Owners | | |
Blackrock, Inc.(1) | 16,410,999 |
| 14.70 |
|
| 55 East 52nd Street | | |
| New York, NY 10055 | | |
The Vanguard Group(2) | 11,599,669 |
| 10.38 |
|
| 100 Vanguard Blvd. | | |
| Malvern, PA 19355 | | |
Dimensional Fund Advisors LP(3) | 9,386,258 |
| 8.40 |
|
| 6300 Bee Cave Road | | |
| Austin, TX 78746 | | |
Barrow, Hanley, Mewhinney & Strauss, LLC(4) | 6,146,108 |
| 5.50 |
|
| 6300 Bee Cave Road | | |
| Austin, TX 78746 | | |
| | | |
| | | |
Non-Employee Directors (5) | | |
| Elizabeth A. Chappell | 66,133 |
| * |
|
| William L. Kozyra | 27,585 |
| * |
|
| Peter D. Lyons | 32,585 |
| * |
|
| James A. McCaslin | 57,557 |
| * |
|
| William P. Miller II | 74,607 |
| * |
|
| Herbert K. Parker | — |
| — |
|
| Sandra E. Pierce | — |
| — |
|
| John F. Smith | 54,057 |
| * |
|
| Samuel Valenti III | 43,044 |
| * |
|
| | | |
| Named Executive Officers | | |
David C. Dauch(6) | 645,703 |
| * |
|
| Christopher J. May | 38,668 |
| * |
|
| Michael K. Simonte | 170,349 |
| * |
|
| Alberto L. Satine | 34,733 |
| * |
|
| Norman Willemse | 62,452 |
| * |
|
| All Directors and Executive Officers as a Group (22 persons) | 1,425,508 |
| 1.3 |
|
(*) Less than 1% of the outstanding shares of AAM common stock.
| |
| (1) | Based on the Schedule 13G filed on January 24, 2019 by Blackrock, Inc., reporting sole voting power over 16,130,452 shares and sole investment power over 16,410,999 shares. |
| |
| (2) | Based on the Schedule 13G filed on February 11, 2019 by The Vanguard Group, reporting sole voting power over 111,941 shares, sole investment power over 11,487,466, shared voting power over 13,600 shares and shared investment power over 112,203 shares. |
| |
| (3) | Based on the Schedule 13G filed on February 8, 2019 by Dimensional Fund Advisors LP, reporting sole voting power over 9,009,327 shares and sole investment power over 9,386,258 shares. |
|
| |
| Beneficial Stock Ownership |
| |
| (4) | Based on the Schedule 13G filed on February 12, 2019 by Barrow, Hanley, Mewhinney & Strauss, LLC, reporting sole voting power over 4,286,382 shares and shared voting power over 1,859,726 shares and sole investment power over 6,146,108 shares. |
| |
| (5) | Includes vested RSUs awarded to non-employee directors that have been deferred. For the number of RSUs held by each non-employee director, see table included in Compensation of Directors. |
| |
| (6) | Includes 548 shares held in trusts for the benefit of Mr. Dauch’s children. |
|
|
| Related Person Transactions Policy |
The Board has adopted a written policy and procedure for the review, approval and ratification of transactions involving AAM and any “related person” as defined in the policy. This policy supplements AAM’s other conflict of interest policies in our Code of Business Conduct. The Audit Committee is responsible for reviewing, approving and ratifying all related person transactions in accordance with the policy and the Audit Committee's charter.transactions.
For purposes of this policy, a related person transaction includes any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships in which AAM is or is expected to be a participant, the amount involved exceeds $120,000, and a related person has or will have a material interest. A related person includes directors and executive officers and their immediate family members, stockholders owning more than five percent of the Company's outstanding common stock as of the last completed fiscal year, and any entity owned or controlled by any one of these persons.
The Audit Committee makes a determination whether a related person's interest in a transaction is material based on a review of the facts and circumstances. In deciding whether to approve or ratify a related person transaction, the Audit Committee will take into account, among other factors it deems appropriate, (1) whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and (2) the significance of the related person's interest in the transaction.
A member of the Audit Committee may not participate in the review or vote concerning any related person transaction in which the Audit Committee member or his or her immediate family member is involved.
The policy also provides that certain types of transactions are deemed to be pre-approved by the Audit Committee and do not require separate approval or ratification. During fiscal year 20162018 and as of the date of this Amendment,proxy statement, the Company has not engaged in any reportable related person transactions.
Board and Committee Meetings
Directors are expected to attend all Board meetings, meetings of committees on which they serve, and stockholder meetings. Directors are expected to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. During 2016, the Board held four regularly scheduled meetings and five special meetings. All continuing directors attended 100% of the Board and applicable committee meetings during 2016, except one continuing director missed two Board meetings. No director attended less than 75% of required meetings. Overall attendance at such meetings was approximately 99%. All incumbent directors and nominees attended the 2016 annual meeting of stockholders.
The following table shows committee membership as of December 31, 2016 and the number of committee meetings held during 2016.
COMMITTEE MEMBERSHIP AS OF DECEMBER 31, 2016 |
| | | | | |
| Name of Director | Audit Committee | Compensation Committee | Nominating/ Corporate Governance Committee | Executive Committee | Strategy & Technology Committee |
| David C. Dauch | | | | Chair | X |
| Elizabeth A. Chappell | | Chair | X | | X |
| William. L. Kozyra | | X | X | | X |
| Peter D. Lyons | X | | X | | X |
| James A. McCaslin | | X | Chair | X | X |
| William P. Miller II | Chair | | | | X |
| John F. Smith | X | | | | Chair |
| Samuel Valenti III | X | X | X | X | X |
| No. of Meetings in 2016 | 5 | 4 | 4 | — | 4 |
|
|
| Section 16(a) Beneficial Ownership Reporting Compliance |
Audit Committee
The Audit Committee assists the Board in fulfilling its oversight responsibility with respect to:
the quality and integrity of our financial statements;
our compliance with legal and regulatory requirements;
our independent auditors’ qualifications and independence; and
the performance of our internal audit function and independent auditors.
The Audit Committee's responsibilities are more fully described in its written charter, which is available on AAM’s website at http://investor.aam.com.
All membersSection 16(a) of the Audit Committee are independentSecurities Exchange Act of 1934 requires our directors and financially literate under NYSE listing standards and independent under our Director Independence Guidelines. The Board has also determined that Mr. Miller and Mr. Smith are "audit committee financial experts" as defined by the SEC.
Compensation Committee
The Compensation Committee's responsibilities include the following:
establishing and reviewing AAM’s compensation philosophy and programs for executive officers;
approving executive officer compensation that is designed to support achievement of AAM’s business strategy and objectives while considering competitive market practices and stockholder interests;
approving corporate goals and objectives for executive officer compensation and evaluating executive officer performance in light of these criteria;
recommending incentive compensation and equity-based plans to the Board;
overseeing management’s risk assessment of the Company’s policies and practices regarding its compensation programs for executive officers, and other associates;persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission (SEC) initial reports of ownership and reports of changes in ownership of our common stock. Based solely on our review of these reports, and written representations from such reporting persons, we believe that the Section 16(a) filing requirements for such reporting persons were met during 2018.
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| |
| Advisory Vote on Executive Compensation |
recommending non-employee director
|
|
| Proposal 2: Advisory vote on Executive Compensation |
AAM is seeking a non-binding advisory vote from our stockholders to approve the compensation and benefits to the Board;
overseeing the preparation of our named executive officers as disclosed in the Compensation Discussion and Analysis (CD&A) for inclusionand narrative and tabular disclosures in our annualthis proxy statement; and
producingstatement. In the Compensation Committee Report for inclusion in our annual proxy statement.
The Compensation Committee's responsibilities are more fully described in its written charter, which is available on our website at http://investor.aam.com.
All Compensation Committee members are independent under NYSE listing standards, including the standards applicable specifically to compensation committee members, and our Director Independence Guidelines. All Compensation Committee members are “outside directors” within the meaningCD&A, we provide a detailed description of Section 162(m) of the Internal Revenue Code and are "non-employee" directors within the meaning of SEC Rule 16b-3.
Risk Assessment of Compensation Policies and Practices
We conducted an annual risk assessment for the Compensation Committee to determine whether the risks arising from our fiscal year 2016 compensation policies and practices are reasonably likely to have a material adverse effect on the Company. The risk assessment considered, among other things, AAM’s annual and long-term incentive programs and pay mix, performance measures used to calculate payouts, and pay philosophy and governance. Our annual assessment of compensation-related risks focuses on the program for executive officers in light of their decision-making authority and influence, but also includes a review of the compensation of our other salaried associates. Our risk assessment methodology was reviewed by the Compensation Committee and its independent compensation consultant, Meridian Compensation Partners, LLC (Meridian).
We have designed our compensation programs, including incentiveour compensation plans, with specific features to address potential risks while rewarding our executive officers and other associates for achieving long-term financial and strategic objectives through prudent business judgment and appropriate risk taking. The following elements have been incorporated in our programs for executive officers:
A balanced mix of compensation components. The target compensation mix for our executive officers is composed of base salary, annual cash incentives and long-term equity incentives, representing a mix that is not overly weighted toward short-term cash incentives.
Multiple performance factors. Our annual incentive and long-term incentive plans include multiple measures of performance. Our use of various performance factors diversifies the risk associated with any single aspect of performance. The performance factors and target award opportunities are established in advance by the Compensation Committee in consideration of the Company's performance goalsphilosophy and objectives, the individual elements of executive pay, and stockholder interests.
Long-term incentives. Our long-term incentiveshow the programs are 100% equity-based and have a three-year vesting schedule, which complements our annual cash incentive plan. Sixty-six percent of long-term incentive awards to executive officers are performance-based. These awards are capped at a maximum payout.
Stock ownership requirements. Our executive officers are required to maintain significant share ownership, which aligns their interests with those of our stockholders.
Clawback policy. Our clawback policy authorizes the Compensation Committee to recoup past incentive compensation in the event of a material restatement of the Company's financial results due to fraud or intentional misconduct of an executive officer.
Based on our risk assessment and consideration of various mitigating factors, we concluded that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.
Role of Management in Compensation Decisions
The Compensation Committee is responsible for making compensation decisions relative to executive officers. In making these decisions, the Compensation Committee seeks and considers input from senior management. Since management has direct involvement with and in-depth knowledge of the business strategy, goals and performance of the Company, certain executive officers play an important role in the executive compensation decision-making process. Senior management participates in the Compensation Committee’s activities in the following specific respects:
The CEO provides the Compensation Committee with his evaluation of the performance of the Company’s executive officers, including the other named executive officers (NEOs). The CEO and Vice President, Human Resources make compensation recommendations for executive officers, including base salary levels and the amount and mix of incentive awards.
The CEO, Vice President & CFO and the Vice President, Human Resources develop and recommend performance objectives and targets for AAM’s incentive compensation programs.
The Vice President, Human Resources assists the Chair of the Compensation Committee in developing meeting agendas and oversees the preparation of meeting materials on the matters to be considered.
The CEO, President, Vice President & CFO, the Vice President, Human Resources and the General Counsel, Secretary & Chief Compliance Officer regularly attend Compensation Committee meetings. Management does not attend the executive session of the Compensation Committee.
Role of Compensation Consultant
The Compensation Committee has retained Meridian as its independent compensation consultant. Meridian provides the Compensation Committee with independent advice and ongoing recommendations on compensation matters related to our executive officers and non-employee directors. Meridian also provides the Compensation Committee with competitive market data, peer group analyses and updates on compensation trends and regulatory developments.
In the course of fulfilling its responsibilities, Meridian may communicate directly with the Chair of the Compensation Committee. Meridian also meets with management to gather information, prepare materials, and review proposals to be made to the Compensation Committee. Meridian provides no other services to the Company other than those described above, and has no other direct or indirect business relationships with the Company or any of its subsidiaries or affiliates.
The Compensation Committee determined that Meridian is independent of management and that the services provided by Meridian to the Compensation Committee do not give rise to conflicts of interest. In written correspondence to the Compensation Committee, Meridian provided detailed information addressing each of the six independence factors set forth in NYSE listing standards. In this correspondence and in communications with the Compensation Committee, Meridian affirmed its independence and that of its partners, consultants and employees who service the Compensation Committee on executive compensation matters.
Nominating/Corporate Governance Committee
The Nominating/Corporate Governance Committee’s primary responsibilities are to:
identify qualified individuals to serve on the Board and committees;
review our Corporate Governance Guidelines and Code of Business Conduct and recommend changes as appropriate; and
oversee and approve the process for succession planning for the CEO and other executive officers.
The Nominating/Corporate Governance Committee's responsibilities are more fully described in its written charter, which is available on our website at http://investor.aam.com. All members of the Nominating/Corporate Governance Committee are independent under NYSE listing standards and our Director Independence Guidelines.
Selection Process for Director Nominees. In consultation with the Chairman & CEO, the Nominating/Corporate Governance Committee identifies, evaluates and recommends potential candidates for membership on the Board. This committee conducts inquiries into the backgrounds and qualifications of the candidates and considers questions of independence and possible conflicts of interest. Based on the committee’s evaluation, candidates who meet the Board’s criteria may receive further consideration, which may include interviews with the committee and other directors. The committee then submits its recommendations for nominees to the Board for approval.
Before the Board nominates an incumbent director for re-election by our stockholders, the incumbent director is evaluated by the Nominating/Corporate Governance Committee and/or the Board. This evaluation is based on, among other things, each incumbent director’s contributions to the activities of the Board. After consideration of each incumbent Class III director's qualifications and independence, the committee recommended that the Board nominate Mr. McCaslin, Mr. Miller and Mr. Valenti for re-election as Class III directors, each with a term expiring on the date of the 2020 annual meeting of stockholders. Upon review, the Board decided to recommend Mr. McCaslin, Mr. Miller and Mr. Valenti for re-election at the 2017 annual meeting.
Director Qualifications. AAM’s Corporate Governance Guidelines provide the qualifications for Board membership. Candidates for director nominees to the Board are reviewed in consideration of the current composition of the Board, the operating requirements of the Company and the interests of stockholders. Although specific qualifications may vary from time to time, desired qualities and characteristics include:
high ethical character and shared values with AAM;
high-level leadership experience and achievement at a policy-making level in business, educational or professional activities;
breadth of knowledge of issues affecting AAM;
the ability to contribute special competencies to Board activities, such as financial, technical, international business or other expertise, or industry knowledge;
awareness of a director's vital role in AAM's good corporate citizenship and corporate image; and
sufficient time and availability to effectively carry out a director's duties.
The Board as a whole should reflect the appropriate balance of knowledge, experience, skills, expertise and diversity that, when taken together, will enhance the quality of the Board’s deliberations and decisions. Although the Board has no formal policy regarding diversity, the Board believes that diversity is an essential element of Board effectiveness. In this context, diversity is defined broadly to include differences in background, skills, education, experience, gender, race, national origin and culture.
The Nominating/Corporate Governance Committee considers recommendations of potential candidates from members of our Board, our Chairman & CEO and our stockholders. For director candidates recommended by stockholders, the Nominating/Corporate Governance Committee follows the procedures described below in Other Matters, Stockholder Proposals for 2018 Annual Meeting. The committee will evaluate candidates recommended by stockholders using substantially the same criteria that are considered in evaluating director candidates recommended by our Board members or Chairman & CEO.
Succession Planning. The Nominating/Corporate Governance Committee is responsible for overseeing the Company’s succession planning process for executive officers and other key executive positions at AAM. In performing this role, this committee monitors and approves management’s succession planning process and actions and, with respect to the CEO, makes recommendations to the full Board for approval. The Board has primary responsibility for CEO succession planning and develops both long-term and contingency plans for CEO succession. The Company’s long-term and ongoing succession planning program is designed to support effective senior leadership development and succession in a manner that positions AAM to achieve its strategic, operating and financial performance goals, and enhance stockholder value.
Strategy & Technology Committee/Technology Committee
In July 2015, the Board created the Strategy & Technology Committee and appointed all Board members to serve on this committee. This committee provided oversight of the development and implementation of AAM’s strategic plan and advice to management on specific strategic opportunities as well as oversight and advice to management regarding product, process and systems technologies. In February 2017, the Board changed the Strategy & Technology Committee to a Technology Committee and appointed the following members: John F. Smith (Chairman), James A. McCaslin, William L. Kozyra and William P. Miller II. The Technology Committee oversees and provides advice and counsel to the Company on matters relative to product, process and systems technology. Oversight of strategic matters is the responsibility of the full Board.
Executive Committee
The Executive Committee exercises the authority of the Board during the intervals between Board meetings and does not meet on a regular basis.
PROPOSAL 2: APPROVAL OF AMENDED AND RESTATED AMERICAN AXLE & MANUFACTURING HOLDINGS, INC. 2012 OMNIBUS INCENTIVE PLAN
Background
Upon recommendation of the Compensation Committee, the Board adopted an amended and restated American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive Plan (the Amended and Restated 2012 Plan or the Planon February 2, 2017, subject to shareholder approval, which we are now seeking. The Amended and Restated 2012 Plan includes amendments to increase the number of shares authorized for issuance under the Plan and make certain other changes to the treatment of awards and payouts thereunder. The following material changes will take effect upon adoption of the Amended and Restated 2012 Plan:
The number of shares of common stock available for issuance under the Amended and Restated 2012 Plan will be increased by 2,100,000 shares. The proposed increase in shares represents approximately 2.7% of the common shares of the Company outstanding as of March 7, 2017 (the record date).
All awards granted under the Plan will be subject to a minimum one year time-based vesting requirement.
Distribution of dividends or dividend equivalents on unvested awards will be prohibited until such awards are vested.
Aggregate cash and equity compensation paid to non-employee directors will be limited to $1,000,000.
Recycling of shares underlying exercised stock options will be prohibited.
The 2012 Omnibus Incentive Plan was initially approved by shareholders on April 26, 2012 and most recently amended and restated on April 30, 2015. Under NYSE rules, the proposed amendments to the Plan will not be effective if our shareholders do not approve them. If our shareholders do not approve the proposed Amended and Restated 2012 Plan, we may be required to re-evaluate our compensation structure to ensure that it remains competitive.
We use incentive awards to attract, motivate and retain leadership talent as well as to align our employees’ and non-employee directors’ interests with those of our shareholders. The purpose of the proposed amendments is to allow the Company to award the equity incentives important to our compensation program for the foreseeable future, while resulting in no more than a reasonable amount of potential equity dilution. The Board believes that the proposal to increase the number of shares authorized for issuance is in the best interest of shareholders and supports this proposal for the following reasons:
If the proposed amendment to increase the number of shares available under the Amended and Restated 2012 Plan is not approved, the Company will be compelled to increase significantly the cash-based component of employee compensation, which could reduce the alignment of employee and shareholder interests.
The terms of our equity and other annual and long-term incentive compensation awards and our employee policies are designed to protect shareholder interests and encourage employees to focus on the long-term success of the Company.
As has been the Company’s practice, the proposed amendment includes a minimum vesting provision that explicitly imposes a minimum vesting period of one year on all awards, except (i) for certain awards substituted for awards with time-based vesting no less than the award being replaced, (ii) for 5% of the number of shares reserved for future issuance under the Plan as of the date the Plan amendment becomes effective, and (iii) in the event of a termination or qualifying termination of employment on or following a change in control, or due to retirement, death or disability.
The Plan allows for dividends or payments equivalent to dividends to be made with respect to an outstanding award under the Plan, but under the proposed amendment, such payments with respect to unvested awards must be accumulated until such award is earned and vested. Distribution of dividends or dividend equivalents accumulated
with respect to an outstanding award will not be made if performance and time-based vesting conditions have not been satisfied.
The new non-employee director pay limit under the proposed amendment provides that the aggregate maximum grant date fair market value of shares with respect to awards granted to under the Plan in any calendar year to any non-employee director, when added to any other compensation paid to such non-employee director in respect of such year, shall not exceed $1,000,000.
Consistent with best practice, the proposed amendment prohibits using the following shares again for grant under the Plan: (i) shares not issued or delivered as a result of net settlement of an outstanding option or stock appreciation right (SAR), (ii) shares delivered to or withheld by the Company to pay the exercise price of or withholding taxes with respect to an option, and (iii) shares repurchased with proceeds from the payment of the exercise price of an option.
Summary of Amended and Restated 2012 Plan as Proposed to Be Amended
The description of the Amended and Restated 2012 Plan in this document is only a summary. Capitalized terms not defined in this summary shall have the meaning given in the Amended and Restated 2012 Plan.administered. We encourage you to readreview the entire PlanCD&A, together with the other narrative and tabular disclosures, in considering your advisory vote on our named executive officers’ compensation (say-on-pay).
Pay for Performance Philosophy
AAM is committed to understand alla compensation philosophy that supports our business strategy and performance, aligns with stockholder interests, and pays competitively. Our compensation programs are designed to balance short-term performance with long-term growth. To align executive pay with AAM's performance, a significant amount of its terms. A copy of the Amendedour CEO's and Restated 2012 Plan has been provided as Appendix A to this proxy statement. In addition, we will send to you, without charge, a copy of the Plan upon your request. You may send your request to: Investor Relations, American Axle & Manufacturing Holdings, Inc., One Dauch Drive, Detroit, Michigan 48211-1198other NEOs' compensation is performance based and is at risk.
PurposeOur incentive programs utilize both short- and Eligibility
The purpose of the Plan is to foster and promote the long-term financial success of the Company and materially increase shareholder value by (a) motivating superior performance by means of performance-related incentives, (b) encouraging and providing the means for employees and non-employee directorsmetrics that correlate to obtain an ownership interest in the Company, and (c) attracting and retaining qualified persons to serve as members of an outstanding management team and as Board members whose judgment, interest and performance are required for the successful and sustained operations of the Company.
All employees and non-employee directors of the Company and its subsidiaries and designated affiliates are eligible to participate in the Amended and Restated 2012 Plan. The ability of our employees and non-employee directors to participate in the Plan is subject to the approval of the Compensation Committee. Approximately 200 employees and non-employee directors may be eligible to participate in the Plan. In addition, the Compensation Committee may select third-party service providers to the Company or any subsidiary to participate in the Plan.
Termination Date
No Awards may be made after ten years from the effective date of the original plan on April 26, 2012.
Administration of the Amended and Restated 2012 Plan
strategic business objectives. The Compensation Committee will administerannually reviews performance metrics, targets and payouts to ensure that they are challenging stretch goals designed to mitigate risk and align with our budget and long-range planning performance.
Shareholder Engagement
Our Board and management team greatly value the Amendedopinions and Restated 2012 Plan and will have the discretion to select the individuals who receive Awards (Participants) and determine the form and terms of the Awards, including any vesting, exercisability, payment or other restrictions. Subject to certain limitations, the Compensation Committee may delegate some or all of its authority to one or more Plan administrators, including members of the Compensation Committee, officers of the Company or selected advisors.
Limits on Awards
The Amended and Restated 2012 Plan limits the grants of Awards to a single Participant in any calendar year as follows:
the maximum aggregate number of shares that may be granted in the form of stock options and SARs is 2,000,000 shares.
the maximum aggregate payout at the end of an applicable performance period or vesting period with respect to Awards of performance shares, performance units (settled in shares), restricted shares or restricted stock units (settled in shares) is 2,000,000 shares, determined as of the date of grant; and
The maximum aggregate amount that may be paid under an Award of performance units (settled in cash), cash-based Awards or any other Award that is payable in cash, in each case that are performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (Code), is $6,000,000, determined as of the date of payout.
The Amended and Restated 2012 Plan limits the grants of Awards to a single non-employee director in any calendar year as follows:
The aggregate maximum grant date fair market value of shares that may be granted under the Plan in any calendar year to any non-employee director, when added to any other compensation paid to such non-employee director in respect of such year, shall not exceed $1,000,000.
Shares Available under the Amended and Restated 2012 Plan
The total number of shares that may be delivered under the Amended and Restated 2012 Plan will be 9,200,000 sharesfeedback of our authorized but unissued sharesshareholders, which is why we have proactive, ongoing engagement with our shareholders throughout the year focused on corporate governance, executive compensation and corporate responsibility. Most recently, our shareholders expressed support of common stock (which takes into account the proposed 2,100,000 share increase), subjectour overall executive compensation program.
2018 Changes to adjustment for share recycling. The number of shares available under the Plan will be equitably adjustedExecutive Compensation Programs
To further align our compensation programs with our business strategy and market practices, we continued to reflect certain transactions, including, but not limited to, merger, consolidation, reorganization, recapitalization, separation, reclassification, stock dividend, stock split, reverse stock split, split up or spin-off.
Share Recycling Rules
The number of shares subject to any portion of an Award granted under the Amended and Restated 2012 Plan that is canceled or that expires without having been settled in shares will be available for new Awards. If shares are tendered or withheld to pay the exercise price of a stock option award, to satisfy a tax withholding obligation with respect to an option, as a result of the net settlement of an option or SAR, or repurchased with proceeds from the payment of the exercise price of an option, such tendered or withheld shares will not be available for new Awards under the Plan.
Types of Awards Allowed under the Amended and Restated 2012 Plan
Form of Awards. The Amended and Restated 2012 Plan authorizesrefine our programs by taking the following awards (Awards): (i) restricted stock or restricted stock units; (ii) performance shares; (iii) performance units; (iv) stock options; (v) SARs; (vi) cash-based awards;steps:
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| – | We increased the rigor of our annual and long-term compensation targets for awards granted in 2018 and continued this practice to drive management performance at the highest levels. |
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| – | We amended the Supplemental Executive Retirement Plan (SERP) and the Executive Deferred Compensation Plan to freeze further benefit accruals and freeze the plans to new participants. |
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| – | We adopted a deferred compensation plan, the Executive Retirement Savings Plan which reduces executive retirement benefits as compared to that of the legacy SERP, a defined benefit plan. |
Although your vote on this proposal is advisory and (vii) other forms of equity-based or equity-related Awards whichnon-binding, the Compensation Committee determines to be consistent with the purposes of the Plan.
Each grant of an Award will be evidenced by an Award agreement that will set forth the termsBoard and conditions of the grant as determined in the sole discretion of the Compensation Committee. These terms and conditions may include, but are not limited to, restrictions on transferability and the continued employment of the grantee, performance or other conditions, if any, that must be satisfied before all or part of the applicable restrictions or vesting periods lapse, the applicable performance conditions, if any, the duration of the exercise period, if any, and the effect of terminations of employment and change in control. The terms and conditions need not be uniform among all grants of Awards, form of Awards or Participants.
Transferability. Unless otherwise permitted by the Compensation Committee, no Award will be transferable other than by will or by the laws of descent and distribution. During the lifetime of a Participant, stock options and SARs will be exercisable only by the Participant.
Restricted Stock and Restricted Stock Units. Restricted stock Awards are outstanding shares of common stock that the Compensation Committee may make subject to restrictions on transfer, vesting requirements or cancellation under specified circumstances. A Participant granted restricted stock generally has most of the rights of a shareholder, including the right to receive dividends and the right to vote such shares.
Upon satisfaction of the terms and conditions of the Award, a restricted stock unit will be payable in common stock or in cash equal to the fair market value on the payment date of one share of common stock, as specified in the Award agreement. As a holder of restricted stock units, a Participant will have only the rights of a general unsecured creditor of the Company. A Participant will not be a shareholder with respect to the shares underlying restricted stock units unless and until the restricted stock units convert to shares of common stock. However, the Compensation Committee, in its discretion, may provide for the payment of dividend equivalents with respect to restricted stock units.
Performance Shares and Performance Units. Performance shares and performance units are Awards based upon the attainment of certain performance criteria over a performance period specified by the Compensation Committee at the time of grant. Each performance share shall have an initial value equal to one share of common stock. Each performance unit shall have an initial notional value equal to a dollar amount as established by the Compensation Committee, in its discretion. Performance shares and performance units may be settled in cash, in shares or a combination thereof. Performance shares and performance units may but are not required to comply with the requirements of Code Section 162(m). The Compensation Committee may elect to utilize performance measures that are not specified in the Amended and Restated 2012 Plan with respect to performance shares and performance units not intended to comply with Code Section 162(m).
Stock Options and SARs
General. Stock options represent the right to purchase shares of common stock in the future at a specified exercise price set by the Compensation Committee. Stock options may be either nonqualified stock options or incentive stock options (ISOs) granted pursuant to Code Section 422. Upon satisfaction of the conditions to exercisability, a Participant may exercise a stock option and receive the number of shares of common stock in respect of which the stock option is exercised. Upon satisfaction of the conditions to payment, each SAR will entitle a Participant to an amount, if any, equal to the amount by which the fair market value of a share of common stock on the date of exercise exceeds the SAR exercise price. At the discretion of the Compensation Committee, SARs may be payable in common stock, cash or a combination thereof.
Exercise Price. The exercise price of stock options and SARs awarded under the Plan may not be less than 100% of the fair market value of one share of common stock on the grant date. The exercise price of a stock option may be paid in cash, by tendering previously acquired shares, by a cashless (broker assisted) exercise, through net share settlement involving the withholding of shares subject to the stock option or any other method approved by the Compensation Committee.
Maximum Term of Stock Options and SARs. No stock option or SAR may have an expiration date that is later than the tenth anniversary of the Award date. No ISO granted to a Participant who owns more than 10% of our stock may have an expiration date that is later than the fifth anniversary of the grant date.
Other Stock-Based and Cash-Based Awards.The Compensation Committee may grant other forms of cash-based and stock-based Awards not specifically described in the Plan including, but not limited to, unrestricted shares, deferred shares and deferred share units.
162(m) Performance-Based Compensation
The Compensation Committee may designate any Award (other than an Option or SAR) as performance-based compensation upon grant, in each case based upon a determination that (i) the Participant is or may be a covered employee, within the meaning of Code Section 162(m), with respect to such Award, and (ii) the Committee wishes such Award to qualify for exemption from the limitation on deductibility under Code Section 162(m)(4)(c). The Compensation Committee shall have the sole authority to specify which Awards are to be granted in compliance with Code Section 162(m) and treated as performance-based compensation.
For each grant of an Award designated as performance-based compensation, the Compensation Committee will establish the terms and conditions of the grant in accordance with the requirements of Code Section 162(m), including, but not limitedcontinue to the size of the Award, performance measures and related performance goals, the performance period over which performance goals must be achieved, payout levels based on achieved goals, form and timing and payout, and the impact of a termination of employment and change in control. At the end of the performance period, the Compensation Committee will determine the degree of achievement of the performance goals that will determine the payout. No Award of performance-based compensation will be earned, vested or paid
until the Compensation Committee certifies the attainment of the pre-established performance goals. The Compensation Committee may set performance goals using any combination of the following performance measures that are set forth in the Amended and Restated 2012 Plan:
(a) Book value or earnings per share;
(b) Cash flow, free cash flow or operating cash flow;
(c) Earnings before or after either, or any combination of, interest, taxes, depreciation, or amortization;
(d) Expenses/costs;
(e) Gross, net or pre-tax income (aggregate or on a per share basis);
(f) Net income as a percentage of sales;
(g) Book value or earnings per share;
(h) Gross or net sales or revenues;
(i) Gross profit or gross margin;
(j) Improvements in capital structure, cost of capital or debt reduction;
(k) Market share or market share penetration;
(l) Growth in managed assets;
(m) Reduction of losses, loss ratios and expense ratios;
(n) Asset turns, inventory turns or fixed asset turns;
(o) Operation performance measures;
(p) Profitability ratios (pre or post tax);
(q) Profitability of an identifiable business unit or product;
(r) Return measures (including return on assets, return on equity, return on investment, return on capital, return on invested capital, gross profit return on investment, gross margin return on investment, economic value added or similar metric);
(s) Share price (including growth or appreciation in share price and total shareholder return);
(t) Strategic business objectives (including objective project milestones);
(u) Transactions relating to acquisitions or divestitures; or
(v) Working capital.
Any performance measure(s) may, as the Compensation Committee in its sole discretion deems appropriate, (i) relate to the performance of the Company or any subsidiary as a whole or any business unit or division of the Company or any subsidiary or any combination thereof, (ii) be compared to the performance of a group of comparator companies, or published or special index, (iii) be based on change in the performance measure over a specified period of time and such change may be measured based on an arithmetic change over the specified period (e.g., cumulative change or average change), or percentage change over the specified period (e.g., cumulative percentage change, average percentage change or compounded percentage change), (iv) relate to or be compared to one or more other performance measures, or (v) any combination of the foregoing. The
Compensation Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals pursuant to the performance measures specified above.
The Performance Measures shall be determined in accordance with generally accepted accounting principles consistently applied on a business unit, divisional, subsidiary or consolidated basis or any combination thereof. The Compensation Committee may provide in any Award that any evaluation of performance may include or exclude the impact, if any, on reported financial results of any of the following events that occurs during a Performance Period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) changes in tax laws, accounting principles or other laws or provisions, (d) reorganization or restructuring programs, (e) acquisitions or divestitures, (f) foreign exchange gains and losses, and (g) gains and losses that are treated as unusual or infrequently occurring items within the meaning of the accounting standards of the Financial Accounting Standard Board or such comparable successor term.
Types of Awards Allowed for Non-employee Directors under the Amended and Restated 2012 Plan
Our non-employee directors generally may receive Awards under the Amended and Restated 2012 Plan similar to those granted to other Participants. The Board may provide that all or a portion of a non-employee director’s annual retainer and/or retainer fees or other Awards or compensation be payable in non-qualified stock options, restricted shares and restricted stock units, either automatically or at the choice of the non-employee directors. The Board will determine the terms and conditions of any such Awards, including those that apply upon the termination of a non-employee director’s service as a member of the Board. Non-employee directors are also eligible to receive other Awards pursuant to the terms of the Plan, including options and SARs, restricted shares and restricted stock units and deferred stock units, upon such terms as the Board may determine. With respect to Awards made to non-employee directors, the Plan will be administered by our Board.
Amendment of the Amended and Restated 2012 Plan
Our Board may amend the Amended and Restated 2012 Plan and any Award made under the Plan at any time for any reason or no reason, except that our Board must obtain shareholder approval if shareholder approval is required in order to comply with the listing or other requirements of any securities exchange on which shares of the Company are listed or are desired to be listed or to comply with applicable U.S. or state laws, or regulations and the law of any foreign country or jurisdiction where Awards are granted under the Plan. No termination, amendment or suspension of the Plan and any Award made under the Plan may adversely affect in any material way any Award previously granted under the Plan without the written consent of the Award recipient, subject to certain conditions described in the Plan.
Treatment of Awards under the Amended and Restated 2012 Plan in the Event of a Change in Control of the Company
A "change in control" is generally defined in the Amended and Restated 2012 Plan as:
The acquisition by a person unaffiliated with the Company of beneficial ownership of 30% or more ofcarefully consider the voting power of the Company's outstanding voting securities that may be cast for the election of directors;results when making future compensation decisions.
The occurrence of certain mergers, consolidations, cash tender or exchange offers, sale of assets or similar forms of corporation transactions resulting in the transfer of 50% or more of the total voting power of the Company's outstanding securities that may be cast for the election of directors;
A change in the composition of a majority of the Company's Board over a period of two consecutive years (if the new directors are not approved by the incumbent Board); or
The approval by the shareholders of a plan or proposal for the Company's dissolution.
Disposition of Awards Upon Change in Control
Subject to the minimum vesting period of one year, if a Participant has in effect an employment, retention, change in control, severance or similar agreement with the Company or any subsidiary or is subject to a policy or plan that discusses the effect of a change in control on a Participant’s awards, then such agreement, plan or policy shall
govern. In all other cases, unless provided otherwise in an Award agreement or by the Compensation Committee prior to the date of the change in control, in the event of a change in control:
Award Assumed by Successor. If a Successor agrees, some or all outstanding awards will either be assumed, or replaced with awards of the same type with similar terms and conditions, by a Successor in the transaction. In the event of termination following a change in control, the Plan provides for double-trigger vesting acceleration. Subject to the minimum vesting period of one year, if the Participant's employment with a Successor terminates in connection with or within two years following the change in control for any reason other than an involuntary termination by a Successor for cause or a voluntary termination by the Participant without good reason, then all of the Participant’s awards that are in effect will be vested in full or deemed earned in full (assuming the target performance goals provided under the award were met, if applicable) effective on the date of the Participant’s termination of employment.
Reimbursement of Cancelled Awards. Subject to the minimum vesting period of one year,if a Successor does not assume the awards or issue replacement awards, then, unless provided otherwise in an award agreement or by the Compensation Committee, immediately prior to the date of the change in control all awards that are then held by Participants will be cancelled in exchange for the right to receive the following:
For each stock option or SAR, a cash payment equal to the excess of the change in control price of the shares covered by the stock option or SAR over the purchase or grant price of such shares;
For each share of restricted stock and each restricted stock unit, a cash payment equal to the change in control price per share or such other consideration as the Company or shareholders receive as a result of the change in control;
For each performance share and/or performance share unit that has been earned but no yet paid, a cash payment equal to the value of the performance share and/or performance unit;
For each performance share and/or performance unit for which the performance period has not yet expired, a cash payment equal to the product of (x) and (y) where (x) is the Award the Participant would have earned based on target performance and (y) is a fraction, the numerator of which is the number of calendar months the Participant was employed by the Company during the performance period (any partial month counts as a full month) and the denominator of which is the number of months in the performance period;
For all other Awards that are earned but not yet paid, a cash payment equal to the value of the other Awards;
For all other Awards that are not yet earned, a cash payment equal to either the amount that would have been due under such Award(s) if any performance goals (as measured at the time of the change in control) were to be achieved at the target level through the end of the performance period or a cash payment based on the value of the Award as of the date of the change in control; and
For all dividend equivalents, a cash payment equal to the value of the dividend equivalents as of the date of the change in control.
Treatment of Awards upon a Participant’s Termination of Employment
The Compensation Committee will determine at or after the time of grant, the terms and conditions that apply to any Award upon a Participant’s termination of employment with the Company and its subsidiaries. Subject to applicable laws, rules and regulations, as well as the minimum vesting period of one year, in connection with a Participant’s termination, the Compensation Committee shall have the discretion to accelerate the vesting, exercisability or settlement of, eliminate the restrictions and conditions applicable to, or extend the post-termination exercise period of an outstanding Award.
Federal Tax Consequences of the Awards Granted under the Amended and Restated 2012 Plan
The following is a brief summary of the United States federal income tax consequences related to Awards granted under the Amended and Restated 2012 Plan:
Restricted Stock Units. The grant of restricted stock units will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon settlement of restricted stock units, the Participant will recognize ordinary income in an amount equal to the then fair market value of the shares of common stock, or cash, distributed at the time of settlement and a corresponding deduction will be allowable to the Company (subject to Code Section 162(m)). If settled in shares, the Participant’s tax basis in the shares will equal the amount taxed as ordinary income, and on subsequent disposition the Participant will realize a capital gain or loss (long-term or short-term, depending upon the holding period of the shares sold).
Restricted Stock. The grant of restricted stock will not result in the recognition of taxable income by the Participant or in a deduction to the Company, unless the Participant makes the special election with the Internal Revenue Service pursuant to Code Section 83(b). Upon lapse of the risk of forfeiture or restrictions on transferability applicable to a grant of restricted stock, the Participant will recognize ordinary income in an amount equal to the then fair market value of the shares subject to the grant and a corresponding deduction will be allowable to the Company (subject to Code Section 162(m)). The Participant’s tax basis in the shares will be equal to the ordinary income recognized. Upon subsequent disposition of the shares, the Participant will realize long-term or short-term capital gain or loss.
Pursuant to Section 83(b) of the Code, the Participant may elect within 30 days of receipt of the Award to be taxed at ordinary income tax rates on the fair market value of the shares comprising such Award at the time of Award (determined without regard to any restrictions which may lapse) less any amount paid for the shares. In that case, the Participant will acquire a tax basis in the shares equal to the ordinary income recognized by the Participant at the time of Award. No tax will be payable upon the lapse or release of the restrictions or at the time the shares first become transferable, and any gain or loss upon subsequent disposition will be a capital gain or loss. In the event of a forfeiture of shares of common stock with respect to which a Participant previously made a Section 83(b) election, the Participant will generally not be entitled to a loss deduction.
Nonqualified Stock Options. The grant of a nonqualified stock option will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares of common stock purchased over the exercise price, and a tax deduction is allowable to the Company equal to the amount of such income (subject to Code Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of a nonqualified stock option generally would be taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the shares sold). Certain additional rules apply if the exercise price for an option is paid in shares previously owned by the Participant.
ISOs. Upon the grant or exercise of an ISO within the meaning of Code Section 422, no income will be realized by the Participant for federal income tax purposes and the Company will not be entitled to any deduction. However, the excess of the fair market value of the shares of common stock as of the date of exercise over the exercise price will constitute an adjustment to taxable income for purposes of the alternative minimum tax. If the shares are not disposed of within the one-year period beginning on the date of the transfer of such shares to the Participant or within the two-year period beginning on the date of grant of the stock option, any profit realized by the Participant upon the disposition of such shares will be taxed as long-term capital gain and no deduction will be allowed to the Company. If the shares are disposed of within the one-year period from the date of transfer of such shares to the Participant or within the two-year period from the date of grant of the stock option, the excess of the fair market value of the shares on the date of exercise or, if less, the fair market value on the date of disposition, over the exercise price will be taxable as ordinary income to the Participant at the time of disposition, and a corresponding deduction will be allowable to the Company. Certain additional rules apply if the exercise price for a stock option is paid in shares previously owned by the Participant.
SARs.The grant of SARs will not result in the recognition of taxable income by the Participant or in a deduction to the Company. Upon exercise, a Participant will recognize ordinary income in an amount equal to the then fair market value of the shares of common stock or cash distributed to the Participant. The Company is entitled to a tax deduction equal to the amount of such income (subject to Code Section 162(m)). Gain or loss upon a subsequent sale of any shares received upon the exercise of SARs generally would be taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the shares sold).
Code Section 162(m) generally disallows a public company from taking a tax deduction for compensation paid in excess of $1,000,000 in any tax year to its chief executive officer and three most highly compensated executive officers other than the chief financial officer. However, compensation that qualifies as performance-based is
excluded from this $1,000,000 deduction limit and therefore remains fully deductible by the Company. The Company generally intends that Awards under the Amended and Restated 2012 Plan qualify as performance-based compensation so that these Awards will not be subject to the Code Section 162(m) deduction limit. However, if the Compensation Committee determines that it is in the Company’s best interest, compensation that is not deductible under Section 162(m) may be paid to a Participant in the Compensation Committee’s sole discretion.
The foregoing discussion is general in nature and is not intended to be a complete description of the United States federal income tax consequences of the Amended and Restated 2012 Plan. This discussion does not address the effects of other federal taxes or taxes imposed under state, local or foreign tax laws. Participants in the Amended and Restated 2012 Plan are urged to consult a tax advisor as to the tax consequences of participation.
New Plan Benefits
No awards have been granted, and no shares have been issued, on the basis of the proposed 2,100,000 share increase. Future grants under the Amended and Restated 2012 Plan will be made at the discretion of the Compensation Committee and, accordingly, are not yet determinable. In addition, the value of the awards granted under the Plan will depend on a number of factors, including the fair market value of our common stock on future dates and the exercise decisions made by the participants. Consequently, it is not possible to determine the benefits that might be received by participants receiving discretionary grants under the Common Stock.
Equity Compensation Plan Information as of March 15, 2017
The following table provides information as of March 15, 2017, regarding the shares of our common stock that may be issued under our existing equity compensation plans. This table does not reflect the additional shares proposed to be added to the 2012 Omnibus Incentive Plan in Proposal 2.
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| | A | B | C | D |
| Plan Category | Number of Securities to be issued upon Exercise of Outstanding Options, Warrants and Rights(1) (#) | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) ($) | Weighted Average Remaining Term of Outstanding Options, Warrants and Rights(3) (#) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) (#) |
| Equity Compensation Plans Approved by Shareholders | 3,298,628 | 9.27 | 1.37 | 1,934,297 |
| Equity Compensation Plans not Approved by Shareholders | - | - | - | - |
(1) Includes 2,095,838 outstanding full value restricted stock unit awards, 110,200 stock options and 1,092,590 outstanding performance share awards at target.
(2) Represents the weighted average exercise price of outstanding stock options.
(3) Represents the weighted average remaining term of outstanding stock options.
Recent Closing Price of the Company’s Common Stock
The closing price of our common stock on March 7, 2017, the record date, was $19.35 per share.
Board Recommendation
The Board unanimously recommends a vote FOR the proposal to approve the Amended and Restated American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive Plan.
COMPENSATION OF EXECUTIVE OFFICERS
Compensation Discussion and Analysis
Executive Summary
Our executive compensation program reflects an externally competitive compensation structure based on a market study of executive compensation programs in AAM's comparative peer group. In addition to attracting and retaining key executives, our program is designed to drive Company and individual performance while aligning the interests of our executives with those of our stockholders. In order to ensure that our executive compensation program drives performance in support of our strategic principles and cultural values, we regularly compare our compensation practices and governance against market best practices and consider stockholder feedback.
Named Executive Officers
Our NEOs for the fiscal year ending December 31, 2016 are:
David C. Dauch, Chairman & Chief Executive Officer;
Christopher J. May, Vice President & Chief Financial Officer;
Michael K. Simonte, President;
Alberto L. Satine, President Driveline; and
Norman Willemse, President Metal Formed Products
2016 Highlights
AAM Performance
AAM had an outstanding year in 2016. The year brought record profit and sales, operational excellence, technology advancement and a strategic initiative that will help position AAM to meet future customer and market demands. During the year, our team worked to continue to diversify our revenue base and improve our capital structure. Business diversification fueled by growth in key global vehicle segments has contributed to our record profitability and strong operating cash flow. By meaningfully strengthening the balance sheet and reducing our debt leverage, we are positioned for both organic growth initiatives and strategic opportunities. The following highlights AAM's sales and earnings before interest, taxes, depreciation and amortization (EBITDA) performance, excluding the impact of restructuring and acquisition-related costs and non-recurring items (Adjusted EBITDA). For a reconciliation of adjusted measures to measures reported under generally accepted accounting principles in the United States, see Reconciliation of Non-GAAP and GAAP Information below.
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(in millions)The Board unanimously recommends a vote FOR the approval of the compensation of our named executive officers. |
In November 2016, AAM announced the proposed acquisition of Metaldyne Performance Group Inc. (MPG). The combination will bring together highly complementary businesses and form a premier, global Tier 1 supplier with broad capabilities across powertrain, drivetrain and driveline product lines, as well as a diversified customer base and end-markets.
Pay for Performance
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| Compensation Discussion and Analysis |
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| Compensation Discussion and Analysis |
Our executive compensation program is designed to attract, motivate and retain high quality leaders that are necessary to manage a company of AAM's size and complexity. In designing our executive compensation philosophy isprogram, the Compensation Committee (Committee) strives to pay for performance, supportalign the Company's business strategies and offer market competitive compensation. Our compensation programs consistincentives of complementary elements that reward achievement of both short-term and long-term objectives. The metrics used for our incentive programs are either associatednamed executive officers (NEOs) with operating performance or based upon relative total shareholder return (TSR). The 2016 incentive payouts for our NEOs reflect an overall pay-for-performance alignment as shown below. This result supports AAM's compensation objectives of rewarding performance and aligning the interests of our executive officers with thoseshareholders by using performance metrics and challenging goals that tie directly to our business strategy. We believe consistent execution of our stockholders.strategy will drive long-term value creation.
The Compensation Discussion and Analysis (CD&A) provides a description of our executive compensation programs, including the Committee's underlying philosophy and decision-making process, components of compensation, and the relationship between AAM's performance and the compensation earned by our NEOs in 2018. Our NEOs for the fiscal year ending December 31, 2018 are shown below.
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| Named Executive Officers |
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David C. Dauch Chairman & Chief Executive Officer |
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Christopher J. May Vice President & Chief Financial Officer |
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Michael K. Simonte President |
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Alberto L. Satine President Electrification (title at 12/31/18) |
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Norman Willemse President Metal Forming |
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| Compensation Discussion and Analysis |
2018 Financial and Performance Highlights
By the end of 2018, we reached a record $7.27 billion in sales on the strength in our core markets and key product segments. We also generated $1.18 billion in Adjusted EBITDA and achieved a record-setting $772 million in cash from operations.
2018 Achievements
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2016 Annual Incentive Performance Metrics | |
| þ | Delivered on our key strategic objectives of profitable growth, diversification, outstanding financial performance, and technology leadership. |
The graphic shown above highlights 2016 net operatingþ | Strong cash flow generation and operating income margin performance, the two metrics by which NEO annual incentive awards were measured. Actual operating income margin excludes the impact of restructuring and acquisition-related costs. Net operating cash flow was adjusted to exclude cashover $200 million in senior debt payments for restructuring and acquisition-related costs. Based on these metrics, total NEO target annual incentive opportunity of $3.1 million resulted in total payouts of $6.2 million. |
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Long-Term Incentive Performance Metrics | | |
| þ | Formed joint venture with Liuzhou Wuling in China | þ | Recognized as a Fortune 500 Company |
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| þ |  | þ | Met key integration milestones, including synergy attainment from recent acquisitions |
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| þ |  | þ | Named GM Supplier of the Year for 2nd consecutive year |
The graphic shown above highlights cumulative EBITDA | | | |
| þ | Continued to fund significant capital and relative TSRR&D investments in order to drive organic growth to meet our strategic goals | þ | Sold Aftermarket division of our Powertrain Business Unit for the three year period ending December 31, 2016. These two metrics were used to measure performance under the 2014 long-term incentive performance share awards. Three year cumulative EBITDA excludes the impact of a settlement charge related to certain terminated vested participants under our defined benefit plans and restructuring and acquisition-related costs. Based on these metrics, the NEOs received a 0% payout on the relative TSR award and a 191% payout on the EBITDA award.$50 million |
Results of 2016 Say-on-Pay VoteAt our 2016 annual meeting, over 97% of the votes cast were in favor of the Company's say-on-pay proposal. The Compensation Committee (Committee) and the Board considered this favorable outcome as a reflection of our stockholders' strong support of the overall executive compensation program for our NEOs.
What we do....
Emphasize performance-based compensation
A substantial majority of total direct compensation is variable and at risk
Mix of annual and long-term incentives balances the focus between achievement of short-term results and long-term share appreciation
Annual incentive payouts are directly linked to achievement of short-term financial measures
Long-term incentive compensation is 66% performance based
Long-term incentives are designed to drive the Company's long-term success, profitability and growth
Use an independent compensation consultant and peer group analysis
Independent compensation consultant annually performs market study of pay and best practices
Compensation consultant provides independent advice to the Compensation Committee
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• | Total direct compensation targeted at 50th percentile of pay among our peer group
Compensation Discussion and Analysis |
Mitigate undue risk in compensation programs
All incentive award payouts are capped
A risk assessment of compensation programs is performed annually
Clawback policy ensures accountability
Enforce stock ownership requirements for executive officers
CEO stock ownership requirements are 6 times annual base salary
Other NEO stock ownership requirements are 2 to 3 times annual base salary
Utilize double-trigger change-in-control plan
Severance payments and vesting of equity awards require both a change in control and a qualifying termination of employment
What we don't do....
No hedging or pledging of Company stock
No excise tax gross-ups
No excessive perquisites
No excessive change-in-control or executive severance provisions
Executive Compensation Philosophy andHighlights
Compensation Program Metrics Link to Strategic Business Objectives
The Committee determines the overall compensation philosophy of the Company. The Committee believes that the compensation paid to AAM executives should be structured to provide them with meaningful rewards, while maintaining alignment with stockholder interests, our cultural values and strategic principles. Accordingly, AAM’s executive compensation program consists of a mix of base salary, annual incentive compensationutilizes both short- and long-term incentive compensation, with limited perquisites and other personal benefits. A significant portion of total direct compensation is performance-based and contingent upon the achievement of stated Company performance goals.
Compensation Objectives. The following objectives are considered in determining compensation programs and pay levels for our NEOs:
Compensation and benefit programs should attract, motivate and retain experienced executives who are vitalfinancial metrics relative to our short-term and long-term success, profitability and growth. AAM makes an effort to remain competitive by targeting pay levels of our comparative peer group while considering industry conditions and other market influences. Our compensation programs should encourage high-achieving, marketable executives to remain motivated and committed to AAM for long and productive careers.
Compensation and benefit programs should reward Company and individual performance. Our compensation programs strive to deliver competitive compensation for exceptional individual and Company performance as compared to companies in our comparative peer group. As executives progress to higher level leadership positions, a greater portion of their compensation is linked to
Company performance measured against financial and operationalbusiness objectives, and to stockholder returns.
Compensation and benefit programs should foster the long-term focus required to deliver value to our stockholders. Our long-term incentive compensation program motivates executive officers to achieve our strategic objectives and deliver long-term value creation to our stockholders. Executive officers who influence long-term results have a greater proportion of their compensation tied to long-term performance.
Total compensation opportunities should reflect each executive’s level of responsibility and contribution to AAM. While the overall structure of compensation and benefit programs should be broadly similar across the Company, individual pay levels and benefit packages will reflect differences in job responsibilities, geography and marketplace considerations.
Stock ownership requirements for executive officers should align their interests with those of our stockholders. Our stock ownership requirements align our executive officers’ interests with those of stockholders and reinforce the importance of making sound long-term decisions. AAM’s executive officers are required to maintain a certain level of stock ownership based on their position.
Peer Group and Compensation Benchmarking
Determination of Comparative Peer Group
The Committee uses a comparative peer group in determining competitive pay levels and compensation structure, setting incentive pay opportunities and assessing Company performance relative to its peers in support of AAM's executive compensation philosophy and objectives. The Committee annually reviews the composition of the comparative peer group and makes adjustments to reflect changes in the Company's business as well as industry and market conditions.relative total shareholder return (TSR) as a long-term incentive (LTI) metric. The following chart demonstrates how our incentive compensation metrics correlate to our strategic business objectives.
Our current comparative peer group consists of the following companies: |
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A. O. Smith CorporationStrategic Business Objective | Flowserve CorporationAlignment | Tower International Inc. |
BorgWarner Inc. *
| Kennametal Inc. | Trinity Industries, Inc. |
Briggs & Stratton | Lear Corporation *
| USG Corporation |
Cooper-Standard Holdings, Inc. | Meritor Inc. *
| Valmont Industries, Inc. |
Dana Holding Corporation *
| Regal-Beloit Corporation | Visteon Corporation *
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Donaldson Company, Inc. | Tenneco Automotive Inc. *
| Woodward Inc. |
Federal-Mogul Corporation | Terex Corporation | Incentive Metric |
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* Included in our competitor peer group as disclosed in our 2016 annual reportContinue to shareholders.strengthen the balance sheet; provide funding for organic growth, research and development, and other capital priorities | | Free Cash Flow - 2018 LTI Performance Shares (50% metric of performance-based LTI) |
Our competitor peer group also includes Autoliv Inc. | |
Develop innovative technology, including electrification. Reinvest in research and Magna International Inc.development. | Relative TSR - 2018 LTI Performance Shares (50% metric of performance-based LTI) |
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| Create sustainable value for shareholders |
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| Achieve profitable growth, along with the ability to be flexible as the market changes, and reduce leverage | EBITDA - 2018 Annual Incentive Program (100% metric)
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| Deliver integration synergies from recent acquisitions |
The Committee selected this peer group based on guidance from the Committee's independent compensation consultant, Meridian Compensation Partners, LLC. Our comparative peer group includes companies in automotive and related industries with comparable (1) revenues (between one-third and three times our revenues), (2) complexity of global business and operations and (3) market capitalization. This group also includes companies that compete with AAM for executive talent and companies included in the proxy advisory firms' peer groups. AAM's projected revenues are at approximately the median of the comparative peer group's projected revenues.Goal Rigor
The Committee annually reviews performance metrics, targets and payouts to ensure that they are challenging, stretch goals that are aligned with our strategy and long-range plan and are also designed to mitigate risk.
The incentive metrics selected by the comparative peer groupCommittee in 2018 focused on the importance of EBITDA performance for the annual incentive and free cash flow and relative TSR, weighted equally, for the LTI awards.
Significantly, the Committee increased the rigor of our annual and long-term compensation targets for awards granted in 2018. The impact of this goal rigor is reflected in the 2018 annual incentive award payout. Although AAM achieved record-setting adjusted EBITDA performance in 2018, our NEOs received a below-target payout based on the stretch goals set by the Committee.
2018 Changes to determineExecutive Compensation Programs
AAM is committed to engaging in constructive and meaningful communications with our shareholders. We received a favorable vote of 97% for our say-on-pay proposal in 2018. We believe this outcome reflects our responsiveness to shareholder feedback relating to executive compensation. More recently, our shareholders continued to express support of our overall executive compensation program and the appropriatenessalignment of our incentive compensation goals with the Company's overall business strategy. In consideration of the peer group considering the factors noted above. Based on an updated analysis of the peer group performed by Meridian during 2016, the Committee approved certain changesfeedback we continued to the peer groupreceive from our shareholders and prevailing market practices among our peers, we continued to be used in the 2017 executive compensation benchmarking analysis. The changes to the peer group resulted in removing five of the current companies and adding six new companies. AAM's projected revenues remain at approximately the median of the revised comparative peer group's projected revenues.refine our programs.
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| – | We increased the rigor of our annual and LTI compensation targets for awards granted in 2018 and continued this practice to drive management performance at the highest levels. |
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| Compensation Discussion and Analysis |
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| – | In April 2018, AAM amended the Supplemental Executive Retirement Plan (SERP) and the Executive Deferred Compensation Plan to freeze further benefit accruals and freeze the plans to new participants. At the same time, and to further align our benefit programs with prevailing market practices, AAM adopted the Executive Retirement Savings Plan (ERSP) to become effective January 1, 2019. The ERSP, a deferred compensation plan, reduces executive retirement benefits and provides cost savings to the Company as compared to the legacy SERP, a defined benefit plan. |
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| – | In April 2018, AAM adopted the Executive Officer Severance Plan (Severance Plan) in order to provide severance other than in a change in control to executive officers with the purpose of retaining our executives and allowing them to focus on our business strategy. In addition, AAM amended its employment agreements with Mr. Dauch and Mr. Simonte to align severance payable under their employment agreements with the Severance Plan. |
Compensation Benchmarking
Generally, the Committee targets total direct compensation at approximately the 50th percentile of our comparative peer group. The Committee believes that this approach reflects a generally accepted benchmark of external competitiveness and supports our ability to attract and retain key executives.Pay for Performance Alignment
Total direct compensation consists of base salary plus target annual and long-term incentive compensation. Total direct compensation for each NEO may be above or below the 50th percentile of our comparative peer group based on various factors, including an individual's level of responsibility, demonstrated skills and experience, significance of position, contribution to Company performance, time in position, potential for advancement and internal pay equity considerations. The Committee generally sets performance objectives for annual and long-term incentive compensation so that targeted total direct compensation levels can be achieved only when target performance objectives are met. Consequently, actual pay may vary from targeted levels based on achieved performance against pre-established performance objectives.
Tally Sheets
Annually, the Committee reviews compensation tally sheets for each executive officer, including the NEOs. The tally sheets, which are prepared by management, provide a summary of the current amounts of each component of pay and a history of prior long-term incentive grants. The tally sheets also show estimates of potential payments and benefits that could be realized under various hypothetical termination scenarios. The tally sheets consist of information that is substantially similar to the information shown for each NEO in Potential Payments Upon Termination or Change in Control below. The Committee did not change the NEOs’ compensation based on its review of this information in 2016.
Total NEO Total Direct Compensation Pay Mix
The following chart illustrates the allocation of 20162018 total direct compensation components at target for our CEO and for our other NEOs (average) as a group as of December 31, 2016.2018. This analysis highlights the Company's emphasis on long-term and at-risk compensation.
Total NEO Compensation
For 2016, the Committee set total direct compensation for Mr. Dauch and Mr. Simonte at approximately the 50thpercentile of the peer group. For Mr. May, who was appointed CFO in August 2015, the Committee set total direct compensation below the 50th percentile based on his limited time in this position. The levels of total direct compensation for Mr. Satine and Mr. Willemse were determined in consideration of internal pay equity for their positions. Accordingly, total direct compensation was set below the 50th percentile of the peer group for Mr. Satine and above the 50th percentile for Mr. Willemse. |
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| Compensation Discussion and Analysis |
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| Compensation of Executive Officers |
Executive Compensation Philosophy
AAM is committed to a compensation philosophy that supports our business strategy and performance, aligns with stockholder interests, and pays competitively. |
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| Supports Business Strategy | Market Competitive | Aligned with Shareholder Interests |
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| – 86% of CEO compensation is variable and at risk– Rigorous performance goals as key drivers of enterprise value creation such as EBITDA, relative TSR and cash flow– Programs utilize metrics that emphasize company performance and are aligned with business strategy | – Attract and retain executive talent– Benchmark pay against a peer group of similarly sized companies– Target direct compensation at the 50th percentile– Ensure incentive plans reward for desired behaviors and pay outcomes align with results | – Mix of annual and long-term incentive programs balances focus between short-term results and long-term share appreciation– 66% of LTI is performance-based– Cap on payout of performance shares based on relative TSR if absolute TSR is negative– CEO stock ownership requirement of 6 times base salary |
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The foundation of our philosophy is a best practice approach to compensation governance that includes a clawback policy, an anti-hedging policy, an annual risk assessment of compensation programs and practices, double-trigger equity vesting and severance provisions, and the exclusion of excise tax gross-ups.
Components of the AAM Compensation Program
The primary components of AAM’s executive compensation program for 2016 are summarized below:below.
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| Component | Key Purpose | Characteristics |
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| Base Salary | * PartBased on level of competitive total compensation package
* Determined based on market comparative positions andresponsibility, experience, individual performance experience, time in position, professional development, contributions to the Company and internal pay equity considerations
| * Provides base level ofFixed cash compensation for attracting and retaining executive talentcomponent generally targeted at the peer group median |
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| Annual Incentive Compensation | * Determined based on pre-established financialIncentive to drive short-term performance factors, including:
- Operating income margin (50%) and
- Net operating cash flow (50%)
aligned with strategic goals | * Provides an opportunityCash award that is at-risk subject to earn a cash-based annual incentive award
* Aligns with financialthe attainment of performance
* Target awards vary based on position and other factors
targets |
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| Long-Term Incentive Compensation | Incentive to drive long-term financial and strategic growth that creates shareholder value and supports retention of executives | |
| Awarded in a combination of Performance Shares (66%) | * Performance Shares tie a substantial portion of total compensation to the Company's future achievement of pre-established performance goals over a three-year performance period, including:
- EBITDA (33% and RSUs (34%)
- Relative TSR (33%)
| * Aligns the interests of executive officers with those of shareholders by providing a mix of equity compensation tied to financial and share performance
* Combined with the Company's vesting and stock ownership requirements, as well as a clawback feature, equity-based awards balance the goals of encouraging that drive sustainable results over time and reward those results with appropriate levels of actual compensation
* Total target awards vary based on position and other factorsshareholder value |
Restricted Stock Units (34%) | * Restricted Stock Units align awards with stock price performance and encourage executive retention with vesting after a three-year period | |
Retirement Benefits and Deferred Compensation | * Includes qualifiedProvide income upon retirement | 401(k) and nonqualified defined benefit and defined contribution plans, as well as a nonqualified retirement plan and deferred compensation planplans |
| * Provides income upon retirement including tax-deferred methods for general savings | |
| Perquisites | * Primarily consists of the use of a Company-provided vehicle with AAM content | * Provides a limitedLimited supplement to total direct compensation | Primary benefit is company-provided vehicles with AAM content |
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| Compensation Discussion and Analysis |
Base Salary.Decision-Making Process
Comprised solely of independent, non-employee directors, the Compensation Committee oversees the compensation and benefits programs for our executive officers, including the NEOs. In the fourth quarterits oversight of each year,our 2018 executive compensation program, the Committee reviews base salaries for executiveworked with its independent compensation consultant, and with the CEO, the President, the CFO, and the Vice President, Human Resources. The CEO and the other officers provided information and recommendations with respect to:
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| – | Company performance objectives and goals, which serve as a basis for incentive compensation; |
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| – | attracting, retaining and motivating executive officers; |
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| – | information regarding financial performance, budgets and forecasts as they pertain to compensation; and |
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| – | industry and market conditions affecting AAM's business strategy. |
Based on the recommendation of the Committee, the Board exercises its judgment to approve the compensation for the following calendar year. In determining 2016 base salaries forCEO. For all other executive officers, the Committee reviewed benchmark data comparingconsiders the CEO's recommendation for setting compensation levels. The compensation approved for the CEO and other executives is aligned with the Company's overall compensation philosophy. For 2018, the Committee made pay levelsdecisions based on a market analysis, Company performance and specific factors about each NEO, including individual performance, experience, internal equity, scope and responsibility of position, retention and other factors described in more detail below.
Role of the Compensation Consultant
The Committee has retained Meridian Compensation Partners LLC (Meridian) as its independent compensation consultant. Meridian provides the Committee with independent advice and ongoing recommendations on compensation matters related to our executive officers and non-employee directors. Meridian provides the Committee with thosecompetitive market data, peer group analyses and updates on compensation trends and regulatory developments. Meridian also worked with the Company in evaluating its incentive programs and the selection of executives holding similar positions at companiesperformance measures in response to shareholder feedback.
In the course of fulfilling its responsibilities, Meridian frequently communicates with the Chair of the Committee both prior to and following Committee meetings. Meridian also meets with management to gather information, prepare materials and review proposals to be made to the Committee. Meridian provides no other services to the Company and has no other direct or indirect business relationships with AAM or any of its subsidiaries or affiliates. Based on information provided by Meridian, the Committee assessed Meridian's independence pursuant to NYSE and SEC rules and concluded that no conflict of interest exists that prevents Meridian from independently advising the Committee.
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| Compensation Discussion and Analysis |
Peer Group and Market Analysis
The Committee annually reviews the composition of our comparative peer group. group and makes adjustments to reflect changes in our business, as well as industry and market conditions. The overall purpose of this peer group is to provide a market frame of reference for evaluating our compensation arrangements, understanding compensation trends among comparable companies and reviewing other compensation and governance-related topics. The companies are selected primarily based on the following criteria:
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| – | total revenue and market capitalization; |
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| – | competitors in industry segment; |
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| – | complexity of global business and operations; and |
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| – | competition for talent and investor capital. |
The Committee consideredchanged the recommendationscomparative peer group to benchmark executive 2018 and 2019 compensation. AAM's revenues are at approximately the median of Mr. Dauchthe comparative peer revenues. The comparative peer group from 2017 to 2019 is shown below.
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| 2017 Peers | | 2017 to 2018 Changes | | 2018 Peers | | 2018 to 2019 Changes |
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| Ametek Inc. Aptiv PLC BorgWarner Inc. Cooper-Standard Holdings Inc. Cummins Inc. Dana Incorporated Dover Corporation Federal-Mogul Corporation Flowserve Corporation Fluor Corp. Goodyear Tire & Rubber Company Lear Corporation Meritor, Inc. Illinois Tool Works Inc. Navistar International Corporation PACCAR Inc Parker-Hannifin Corporation Rockwell Automation Tenneco Inc. Terex Corporation Trinity Industries, Inc. Visteon Corporation | | ADDITIONS | | Ametek Inc. Aptiv PLC BorgWarner Inc. Cooper-Standard Holdings Inc. Cummins Inc. Dana Incorporated Dover Corporation Flowserve Corporation Fluor Corp. Goodyear Tire & Rubber Company Lear Corporation Meritor, Inc. Navistar International Corporation PACCAR Inc Parker-Hannifin Corporation Rockwell Automation Tenneco Inc. Terex Corporation Trinity Industries, Inc. Visteon Corporation | | ADDITIONS |
| | | | | More closely aligned with the size and complexity of our business, our industry and competition for talent Adient plc Cooper Tire & Rubber Company Delphi Technologies Oshkosh Corporation |
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| À | No additions for 2018 | u | À |
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| | REMOVAL | | | REMOVAL |
| | Federal-Mogul Corporation - Acquired by Tenneco
Illinois Tool Works Inc. - Removed due to size | | | No longer aligned with our size and business operations
Ametek Inc. Cummins Inc. Dover Corporation Fluor Corp. PACCAR Inc.
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| Compensation Discussion and Analysis |
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| Direct Compensation Elements |
Base Salary
In determining salary levels for each of our NEOs, the Committee considers factors such as financial and operational performance, leadership, development, time in determining other NEO base salaries.position, internal equity and potential. The Committee approved 2016also considers each NEO's current base salary as compared to the salary range and median salary practices of our peer group.
The Committee determined that base salaries for the CEO and the NEOs (other than Mr. May) would remain unchanged for 2018. The Committee decided to increase Mr. May's 2018 base salary in consideration of his pay level relative to the market median. NEO base salaries as follows:of December 31, 2018 and 2017 are shown below. | | | | | Base Salary | | | | | | | |
| | | 2016 | | 2015 | % Change | | 2018 |
| | 2017 |
| % Change |
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| David C. Dauch | | $ | 1,150,000 |
| | $ | 1,150,000 |
| — | % | | $ | 1,150,000 |
| | $ | 1,150,000 |
| — | % |
| Christopher J. May (effective March 1, 2016) | | $ | 400,000 |
| | $ | 350,000 |
| 14 | % | |
| Christopher J. May | | | $ | 550,000 |
| | $ | 500,000 |
| 10 | % |
| Michael K. Simonte | | $ | 640,000 |
| | $ | 640,000 |
| — | % | | $ | 750,000 |
| | $ | 750,000 |
| — | % |
| Alberto L. Satine | | $ | 510,000 |
| | $ | 510,000 |
| — | % | | $ | 610,000 |
| | $ | 610,000 |
| — | % |
| Norman Willemse | | $ | 450,000 |
| | $ | 450,000 |
| — | % | | $ | 530,000 |
| | $ | 530,000 |
| — | % |
In 2016,The Committee determined that base salaries for the CEO and the NEOs (other than Mr. Willemse) will also remain unchanged for 2019. The Committee approved andecided to increase to Mr. May'sWillemse's 2019 base salary to bring it closer the 50th percentile$575,000 effective January 16, 2019 in consideration of the CFO positions among companies in our comparative peer group. Mr. May was appointed CFO in August 2015 and therefore,growth of the Committee set his initial base salary belowMetal Forming business unit as a result of the 50th percentile subject to further review in 2016.realignment of the Company's business units. The Summary Compensation Table shows the base salary earned in 20162018 for each NEO.
Incentive Compensation
Annual Incentive Compensation.
Each NEO's annual incentive compensation is based on achieved results against pre-established financial targets approved by the Committee and established under AAM’sthe AAM Incentive Compensation PlanProgram for Executive Officers. Payment of annual cash incentive awards is permitted to the extent the Company meets or exceeds threshold performance levels.
During shareholder outreach, shareholders expressed support of the Committee's efforts to align performance measures with our business strategy. The Committee considered this feedback in selecting absolute EBITDA dollars as the sole metric for determining 2018 annual incentive payouts. Strong EBITDA performance positions AAM to generate cash, reduce debt and provide funding for profitable growth and other capital priorities. The selection of EBITDA dollars as the sole performance measure emphasizes its importance to our business strategy.
The Committee set the 2018 annual incentive EBITDA target at a level that drives management to continue to perform at a high level, achieve integration synergies, implement productivity improvements and successfully launch new product programs. Recognizing the importance of strong EBITDA performance, the Committee increased the rigor of the threshold, target and maximum performance levels. The performance levels for 2018 annual incentive awards reflect stretch goals that are designed to reward growth and sustain profitability.
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| – | 2018 target performance was set at a level significantly higher than 2017 actual adjusted EBITDA performance. |
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| – | Achievement of target performance would result in the highest adjusted EBITDA performance in AAM history. |
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| – | Target performance is higher than the performance of a majority of our competitor peer group companies. |
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| Compensation Discussion and Analysis |
The following table describes the performance levels and reports positiveresults for 2018.
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| | Weighting |
| | Threshold (Payout 50%) | | Target (Payout 100%) | | Maximum (Payout 200%) | | 2018 Actual Performance | 2018 Actual Payout % |
| Adjusted EBITDA | 100 | % | | $956 million | | $1,275 million | | $1,466 million | | $1,190.7(1) | 87% |
(1) Excludes the impact of restructuring and acquisition-related net income. Subjectactivity of $47.8 million, debt refinancing and redemption costs of $19.4 million and goodwill impairment of $485.5. AAM sold the Powertrain aftermarket business in April 2018. Previously, in February 2018, performance goals for our annual incentive plan were established. As a result of this timing, full-year EBITDA associated with this business was included in the 2018 annual incentive target. An adjustment of $6.8 million has been included to 162(m)reflect the portion of the Internal Revenue Code,year that has been excluded from actual EBITDA results. Considering the impact of this adjustment, actual adjusted EBITDA reflects EBITDA of this business through the closing date of April 4, 2018. Accordingly, adjusted EBITDA reported in our annual report on Form 10-K for the year ended December 31, 2018 was adjusted by this amount for purposes of calculating performance achievements under the annual incentive plan. See Non-GAAP Reconciliation in Appendix A.
Although 2018 actual adjusted EBITDA performance was a record-setting achievement for AAM, the stretch target previously set by the Committee may makewas not achieved. As a result of this goal rigor, our NEOs received a below-target payout of 87%. In addition, the Committee made no discretionary adjustments if it determines that the achievement of performance targetsincreases in 2018 annual incentive payouts for a plan year do not reflect the true performance of the Company due to unanticipated circumstances specifiedany NEO. The amounts paid are shown in the plan. Summary Compensation Table.
Target Annual Incentive Award Opportunities
The table below shows the 20162018 target annual incentive opportunities for our NEOs, stated as a percentage of base salary:
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| | Target Annual Incentive Opportunity |
| | 2016 | 2015 |
| David C. Dauch | 125% | 125% |
| Christopher J. May | 60% | 54% |
| Michael K. Simonte | 100% | 88% |
| Alberto L. Satine | 80% | 68% |
| Norman Willemse | 80% | 68% |
Thesalary. In October 2017, the Committee determined that the annual incentive target opportunities for Mr. May, Mr. Simonte, Mr. Satine and Mr. Willemse were increased effective August 1, 2015 in connection with promotions to their new leadership positions.
Amendment and Restatement of Annual Incentive Plan
In February 2016, the Committee approved the use of operating income margin as an additional performance measureeach NEO would remain unchanged for annual incentives awarded under the Annual Incentive Plan for Executive Officers. The Committee selected this additional performance measure to more closely align compensation with our business strategy of exceptional operating performance. By removing the impact of financing and tax activities, this metric more effectively aligns incentive opportunities with operational performance objectives. This pre-tax earnings measure is more prevalent among companies in our comparative peer group. The plan will continue to include net income as a percentage of sales, net operating cash flow and return on invested capital as available performance measures.
In support of the Company’s 2016 goals and objectives, the Committee approved the use of net operating cash flow and operating income margin, each with equal weighting, as the performance metrics for determining 2016 annual cash incentives. These performance metrics were selected for the following reasons:
net operating cash flow is an important financial metric for AAM due to its impact on liquidity, debt reduction and stockholder value creation;
increasing net operating cash flow is also key to achieving credit rating upgrades, which has a favorable impact on the Company’s cost of future financing; and
operating income is a key indicator of financial and operational performance.
Net operating cash flow is defined as net cash provided by or used in operating activities less capital expenditures net of proceeds from the sale of property, plant and equipment and from government grants.
2016 Annual Incentive Performance
In the fourth quarter of 2015, in conjunction with a review of the Board-approved annual budget, the Committee set 2016 performance targets for the net operating cash flow and operating income margin performance metrics as follows:2018.
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| | Weighting | | Threshold (Payout 50%) | | Target (Payout 100%) | | Maximum (Payout 200%) | | 2016 Actual Performance |
| Net Operating Cash Flow | 50% | | $82.5 million | | $110.0 million | | $126.5 million | | $198.6 million(1) |
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| Operating Income Margin | 50% | | 6.72% | | 8.96% | | 10.30% | | 10.31%(2) |
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| | Target Annual Incentive Opportunity | |
| | 2018 |
| 2017 |
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| David C. Dauch | 135 | % | 135 | % |
| Christopher J. May | 80 | % | 80 | % |
| Michael K. Simonte | 100 | % | 100 | % |
| Alberto L. Satine | 80 | % | 80 | % |
| Norman Willemse | 80 | % | 80 | % |
(1) Excludes the impact of cash paid for restructuring and acquisition-related costs of $9.5 million.
(2) Excludes the impact of restructuring, acquisition-related and asset impairment costs of $26.2 million.
The target for each performance metric was set at budget. The threshold performance was set at 75% of target and the maximum performance was set at 115% of target. In determining these performance and payout levels, the Committee considered an annual incentive plan market analysis performed by Meridian that compared the Company's performance and payout levels to those used by companies in our comparative peer group and among a broader industry group.
The Committee considered the effectiveness of the annual incentive plan design to drive desired levels of performance. The Committee concluded that the threshold performance levels 10.31hould be set at a percentage of target that would drive a higher minimum level of performance, resulting in the achievement of a greater payout of 50% (previously 25%). In addition, the Committee set the maximum levels to reward exceptional performance deserving of a 200% payout. The 2016 annual incentive performance and payout levels are consistent with market practices based on Meridian's analysis.
The operating income margin performance levels were also compared to that of our competitor peer group for the three most recent fiscal years. The target performance level was set at a level to meet the performance of the top one-third of our competitor peer group.
Based on the weighting of each performance metric, the 2016 annual incentive awards resulted in a payout of 200% of target. No discretionary increases were made to 2016 annual incentive payouts for any NEO. The annual incentive awards paid are shown in the Summary Compensation Table.
Long-Term Incentive Compensation.The table below shows the 2016 target long-term incentive opportunities for our NEOs: |
| | | | |
| | 2016 Target Long-Term Incentive Opportunity |
| | ($)(1) | | %(2) |
| David C. Dauch | 4,600,000 |
| | 400% |
| Christopher J. May | 400,000 |
| | 100% |
| Michael K. Simonte | 1,472,000 |
| | 230% |
| Alberto L. Satine | 765,000 |
| | 150% |
| Norman Willemse | 675,000 |
| | 150% |
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| |
| Compensation Discussion and Analysis |
(1) Amounts reflect the value the Committee considered when granting the awards for 2016. These amounts differ from the value of the awards shown in the 2016 SummaryLong-Term Incentive Compensation Table and Grants of Plan-Based Awards Table because those tables reflect the probable outcome of the performance metrics for the performance shares.
(2) Stated as a percentage of base salary.
Mr. Dauch's LTI opportunity was increased to 400% from 375% of base salary effective January 1, 2016. The Committee approved this increase in consideration of the Company's financial performance and Mr. Dauch's leadership in strengthening AAM's management team and advancing product technology and innovation. In addition, Mr. Dauch's LTI opportunity has been increased to 450% for 2017. In determining Mr. Dauch's 2017 LTI
target and in consultation with Meridian, the Committee considered, among other factors, market data provided by Meridian, the strong leadership exhibited by Mr. Dauch in positioning AAM to achieve its strategic objectives, and the outstanding operational and financial performance of the Company in 2016.
The target LTI opportunities for Mr. May (from 60%), Mr. Simonte (from 200%), Mr. Satine (from 120%) and Mr. Willemse (from 100%) were increased for 2016 awards in connection with their appointments to new positions.
2016 Long-Term Incentives
The Committee determined theOur LTI program and each NEO's target LTI opportunity for 2016 in consideration of peer group data, market trends, pay-for-performance alignment and executive retention. Under the 2016 LTI program, each NEO was granted performance shares of 66% and RSUs of 34% of the NEO's target LTI value. RSU awards vest in full on the third anniversary of the grant date and are payable in shares. These awards were granted under the Amended and Restated 2012 Omnibus Incentive Plan (2012 Omnibus Incentive Plan).
Performance share awards are subject to two equally weighted three-year performance metrics: (1) cumulative earnings before interest, taxes, depreciation and amortization (EBITDA) margin and (2) relative total shareholder return (TSR). The Committee selected EBITDA margin because it is a key indicator of our financial and operational performance and is useful in analyzing entity valuation. The Committee selected relative TSR because of its alignment with stock price performance. This TSR performance metricofficers is designed to reward NEOs for creating sustained shareholder value, to encourage ownership of Company stock, and to retain and motivate executive officers to build long-term value for our stockholders. The EBITDA and relative TSR performance measures also complement the metrics we use to determine payouts under our annual incentive program.
The following table shows the threshold, target and maximum EBITDA margin and relative TSR performance levels to be used in determining the payouts for these awards for the performance period January 1, 2016 through December 31, 2018. These performance levels were designed to drive a level of performance in the top one-halfexecutives while aligning their interests with those of our competitor peer group. The competitor peer group consists of companies listed above in Peer Group and Compensation Benchmarking.
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| | | | |
| | EBITDA Margin Performance Measure | Relative TSR Performance Measure |
| Performance Level | 3 Year Cumulative EBITDA Margin | Percent of Target Award Opportunity Earned | Company's TSR Percentile Rank | Percent of Target Award Opportunity Earned |
| Threshold | 10% | 25% | 35th | 50% |
| Target | 12% | 100% | 50th | 100% |
| Maximum | 15% | 200% | 75th | 200% |
Payout of 2014 Performance Share Awards
The performance period for performance shares granted in 2014 ended on December 31, 2016. The final number of shares earned was based on EBITDA margin and relative TSR over the three-year performance period as follows: |
| | | | | | | |
| | Actual Performance | | %of Target Shares Earned | | Award Weighting | | Weighted Payout |
| EBITDA Margin | 14.7%(1) | | 191% | | 50% | | 96% |
| | | | | | | | |
| Relative TSR | 22nd percentile | | —% | | 50% | | —% |
| | | | Final Payout as a % of Target | | 96% |
(1) Excludes the impact of a settlement charge related to certain terminated vested participants under our defined benefit U.S. pension plans and restructuring and acquisition-related costs. See Reconciliation of Non-GAAP and GAAP information.
Equity Grant Practices
shareholders. AAM generally makes equity grants to its executive officers and other executives on an annual basis, subject to the approval of the Committee. Grants are typically made in the first quarter of each year to coincide with the communication to executive officers of their annual cash incentive awards for the previous year’s performance.
This timing increases the impact of the awards by strengthening the link between pay and performance.
|
| | | | |
| | Form of Award |
| | Performance Shares |
| RSUs |
|
| LTI Mix | 66 | % | 34 | % |
| | | |
| Objective | Drive and reward performance key to strategic business objectives |
| Encourage retention and ownership supporting shareholder alignment |
|
| | | |
| Performance Measure | 50% Free Cash Flow
50% RelativeTSR |
| Continued service with AAM |
|
| | | |
| Competitor Peer Group for Relative TSR | Autoliv Inc.
BorgWarner Inc.
Dana Incorporated
Lear Corporation
Magna International Inc.
Meritor Inc,
Tenneco Inc.
Visteon Corporation |
| Not applicable |
|
| | | |
| Performance / Vesting Period | Subject to achievement of performance measures over the three-year performance period January 1, 2018 through December 31, 2020 |
| Cliff vest on the third anniversary of the grant date |
|
| | | |
| Settlement | Settled in AAM stock upon vesting |
| Settled in AAM stock upon vesting |
|
Our competitor peer group is used to assess relative performance for establishing long-term incentive award performance levels. The competitor peer group consists of companies that compete with AAM has never allowed backdating, spring loading orfor capital and operate in similar markets. This group of companies serves as an appropriate benchmark for long-term incentives because of the likelihood that these companies will experience similar business conditions over a three-year cycle.
The Committee evaluated the performance measures for 2018 LTI performance share awards to ensure that the measures are aligned with our business strategy. A key objective of the Company is to strengthen our balance sheet and continue to provide for profitable growth, research and development of innovative technology and other timingcapital priorities. As a result, free cash flow is a key driver to reduce gross leverage and ultimately convert value to shareholders through the valuation process. Accordingly, the Committee modified the 2018 LTI performance metrics to replace EBITDA margin with free cash flow. The Committee believes that relative TSR continues to be an important measure of option grantsperformance because of its alignment with shareholder value creation. Based on these considerations, the 2018 performance share awards are based 50% on free cash flow and 50% on relative TSR.
The performance levels set for 2018 LTI required our management team to continue to perform at a high level, achieve integration synergies, implement productivity improvements, successfully launch new product programs and create long-term value. The Committee increased the rigor of the threshold, target and maximum performance levels as shown below.
| |
| – | Free cash flow target performance for 2018 - 2020 was set at a level higher than the previous three years' performance. |
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| Compensation Discussion and Analysis |
| |
| – | Achievement of target performance would result in the highest free cash flow in AAM history. |
| |
| – | Relative TSR payout is capped if absolute TSR is negative. |
The table below shows the threshold, target and maximum free cash flow and relative TSR performance levels to be used in determining the payouts for these awards for the performance period January 1, 2018 through December 31, 2020.
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| | | | | | |
| | Free Cash Flow Performance Measure | | Relative TSR Performance Measure | |
| Performance Level | 3 Year Cumulative Free Cash Flow | Percent of Target Award Opportunity Earned |
| Company's TSR Percentile Rank | Percent of Target Award Opportunity Earned |
|
| Threshold | $990 million | 50 | % | 35th | 50 | % |
| Target | $1,325 million | 100 | % | 50th | 100 | % |
| Maximum | $1,525 million | 200 | % | 75th | 200 | % |
LTI Award Values
The table below shows the 2018 and 2017 target long-term incentive opportunities for our NEOs. In connection with our acquisition of MPG in 2017, the Committee increased the 2018 LTI target opportunities for the NEOs to reflect the significant increase in size and complexity of the Company. The Committee also considered the greater levels of responsibility and challenges ahead for each of the NEOs to deliver expected results. For Mr. May, the Committee made an incremental increase to his 2018 LTI target to more closely align his incentive opportunity with comparable market practice. |
| | | | | | | | |
| | 2018 Target Long-Term Incentive Opportunity | | 2017 Target Long-Term Incentive Opportunity | |
| | ($)(1) |
| %(2) |
| ($)(1) |
| %(2) |
|
| David C. Dauch | 5,750,000 |
| 500 | % | 5,175,000 |
| 450 | % |
| Christopher J. May | 1,375,000 |
| 250 | % | 412,000 |
| 100 | % |
| Michael K. Simonte | 2,250,000 |
| 300 | % | 1,516,160 |
| 230 | % |
| Alberto L. Satine | 1,220,000 |
| 200 | % | 787,950 |
| 150 | % |
| Norman Willemse | 1,060,000 |
| 200 | % | 695,250 |
| 150 | % |
(1) Amounts reflect the value the Committee considered when granting the awards for 2018 and 2017. These amounts differ from the value of the awards shown in the Summary Compensation Table and Grants of Plan-Based Awards Table because those tables reflect the grant date fair value of these awards, which is based on the probable outcome of the performance metrics for the performance shares.
(2) Stated as a percentage of base salary.
Payout of 2016 Performance Share Awards
The performance period for 2016 performance awards ended on December 31, 2018. The number of shares earned was based on relative TSR and EBITDA margin over the three-year performance period as shown below. |
| | | | | | | | | | |
| | Actual Performance | | % of Target Shares Earned |
| | Award Weighting |
| | Weighted Payout |
|
| Relative TSR | 11th percentile | | 0 | % | | 50 | % | | 0 | % |
| | | | | | | | |
| EBITDA Margin | 16.6%(1) | | 200 | % | | 50 | % | | 200 | % |
| | | | Final Payout as a % of Target | | | 100 | % |
(1) Excludes the restructuring and acquisition-related costs and debt refinancing and redemption costs, goodwill impairment and other non-recurring items. See Non-GAAP Reconciliation in Appendix A.
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| |
| Compensation Discussion and Analysis |
Payouts under the relative TSR performance share awards resulted in a zero payout to senior management because the threshold performance level was not achieved. This result reflects the Committee's commitment to align LTI pay with the releaseinterest of material non-public information. Currently,our shareholders through rigorous goal-setting. Our shareholders did not realize value on our stock optionsover this time period. Consequently, and by design, our senior management team received no value from these awards.
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| | |
| Governance Point | | |
| Payout capped if 3-year absolute TSR is negative. | | |
| | |
The performance targets for the EBITDA margin performance share awards were determined in consideration of AAM's historical EBITDA margins for 2013 – 2015. The maximum performance level was set to drive performance significantly above our peers and encourage EBITDA margin growth. Over this period, management delivered a result well in excess of targets and prior actual performance, which supported an above-target payout. This outstanding financial performance allowed us to reduce debt and position AAM to achieve our strategic objectives.
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| | |
| Actual Performance | | |
| Average Adjusted EBITDA Performance from 2013 - 2015 | | 13.9% |
| | |
| Peer Average Adjusted EBITDA Performance from 2013 - 2015 | | 10.7% |
| | |
2018 Omnibus Incentive Plan
At the 2018 annual meeting, our shareholders approved the adoption of the 2018 Omnibus Incentive Plan. Beginning in 2019, LTI awards are granted under this plan. In approving the 2019 LTI awards, the Committee determined that 66% of the total LTI award would continue to be performance-based in order to drive superior performance that is aligned with our business strategy. Consistent with 2018 performance-based LTI awards, one-half of the 2019 performance-based LTI award is based on relative TSR and one-half is based on free cash flow performance. The relative TSR portion of the 2019 LTI award is denominated and settled in AAM stock. The free cash flow portion of the 2019 LTI award is a performance unit that is denominated in dollars and settled in cash.
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| Compensation Discussion and Analysis |
Summary of Direct Compensation
The Committee believes each pay element of direct compensation is consistent with our compensation philosophy. The Committee reviews direct compensation for each NEO and compares each compensation element to the market data of our comparative peer group. The Committee also considers individual performance, experience, internal equity, scope and responsibility of position, retention and other factors.
Direct compensation for our CEO is higher than for the other NEOs due to the CEO's breadth of executive and operating responsibilities for the entire global enterprise. The Committee does not usedtarget CEO pay as a vehiclecertain multiple of the pay of the other NEOs. For 2018, the Committee set total direct compensation for long-term incentive awards underthe NEOs at approximately the 50thpercentile of the peer group.
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| Indirect Compensation Elements |
Retirement and Deferred Compensation Plans
Our NEOs participate in AAM's qualified retirement and nonqualified retirement and deferred compensation plans. Each executive officer is eligible to participate in the Company's 401(k) plan, which allows U.S. salaried participants to defer a portion of their base salary up to certain IRS limits.
The Supplemental Executive Retirement Plan (SERP), a nonqualified defined benefit plan, provides retirement benefits to executives that are offset by the qualified pension plan benefits. To align our benefit programs with prevailing market practices, the SERP was amended to freeze further benefit accruals as of April 30, 2018 and to freeze the plan to new participants as of April 1, 2018. At the time the legacy SERP was frozen, the AAM Executive Retirement Savings Plan (ERSP) was adopted to become effective January 1, 2019. The ERSP, a nonqualified deferred compensation programs.plan, reduces executive retirement benefits and provides cost savings to the Company as compared to the legacy SERP.
The ERSP provides certain highly-compensated associates the opportunity to receive supplemental deferred compensation upon retirement and certain other qualifying events. The Company provides contributions to the plan equal to a percentage of a participant's combined base salary and bonus paid during a calendar year less their maximum eligible 401(k) Company contributions. The Company may also make discretionary contributions.
In April 2018, the Company also froze the Executive Deferred Compensation Plan (EDC) to further contributions as of December 31, 2018 and to new participants as of April 1, 2018, due to the EDC's limited participation and retention value. Existing contributions will vest and be paid in accordance with the EDC's terms.
Benefits.The SERP, ERSP and EDC plans are further described in Pension Benefits and Nonqualified Deferred Compensation.
Other Benefits and Perquisites
Our NEOs participate in the same benefit and retirementmedical plans in whichas our U.S. salaried associates participate.associates. A group of approximately 6040 senior executives, including the NEOs, also receive supplemental life, supplemental disability and umbrella liability insurance benefits. Our NEOs are eligible to participate in AAM’s qualified and nonqualified defined benefit pension plans and defined contribution plans. They are also eligible to participate in a nonqualified deferred compensation plan that permits deferrals of a portion of base salary and/or annual cash incentive compensation on a pretax basis. These plans are described in the Pension Benefits and Nonqualified Deferred Compensation sections below.
Perquisites.AAM provides a very limited number of perquisites to senior executives, including our NEOs. AAM does not pay for country club memberships. Senior executives are eligible for the use of a Company-provided vehicle with AAM content. Mr. Dauch has the use of two Company-provided vehicles. Occasionally, the Company inviteswe invite spouses of AAM executives to attend Company business events and payspay for the spouse’s travel and related non-business expenses. The CompanyAAM reimburses the executive for taxes attributable to the income associated with this benefit. We do not otherwise provide tax gross ups for executives except for those available for all salaried associates generally. Perquisites are further described in the footnotes to the Summary Compensation Table.
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| Compensation Discussion and Analysis |
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| Other Compensation Matters |
Severance Programs
The terms of Mr. Dauch'sCompany provides severance benefits to NEOs (other than the CEO and Mr. Simonte's employment agreements are described inPresident) under the Narrative toAAM Executive Officer Severance Plan (Severance Plan) and the Summary Compensation Table and Grants of Plan-Based Awards Table and Potential Payments Upon Termination or Change in Control.
AAM Change in Control Plan (CIC Plan). Mr. Dauch and Mr. Simonte do not participate in these programs because their employment agreements provide severance payments and benefits as described below.
The AAM Executive Officer ChangeCommittee believes that these severance programs provide competitive severance benefits that attract and retain key talent during potentially critical and uncertain periods. These programs are designed to foster stability within senior management by helping executives maintain focus on and dedication to their responsibilities to maximize shareholder value, including in Control (CIC)the event of a transaction that may result in a change in control. These programs are also guided by our compensation philosophy and governance practices (e.g., double-trigger change in control provisions, no tax gross ups) and are well aligned with those of our peers.
The Severance Plan, which was adopted in April 2018, provides severance benefits other than in connection with a change in control. The Committee adopted this plan to further align our programs with market practices. Under the Severance Plan, upon termination of employment by the Company without cause or resignation by a participant for good reason, each eligible executive officer will be entitled to certain severance payments and benefits, including a multiple of base salary and target bonus, prorated annual target bonus for the year of termination and continued participation in the Company's medical benefit plans for the applicable severance period.
The CIC Plan provides participants, including eligible executive officers, severance payments and benefits in the event of termination of employment on or within two years following a CIC. Mr. DauchThese benefits include a multiple of base salary and Mr. Simonte do not participatetarget bonus and continued participation in the Company's medical benefit plans for the applicable severance period.
Benefits under the Severance Plan and the CIC Plan dueare subject to the severance paymentsexecution and benefits provided under eachnon-revocation of their employment agreements. The Board believes the CIC Plan enhances stockholder value by encouraging executive officers to consider CIC transactions that may be in the best interestsa general waiver and release of claims against the Company and our stockholders while keeping them neutralcompliance with certain restrictive covenants. The benefits are also subject to potential job loss. The Board also believes that the CIC Plan is aligned with competitive market practices and will help to retain key talent. Severance benefitsrecoupment or clawback. Benefits provided to our NEOs under these programs are described under inPotential Payments Upon Termination or Change in Control.
Employment Agreements
Severance benefits are provided to Mr. Dauch and Mr. Simonte under the terms of each of their employment agreements. In connection with the adoption of the Severance Plan in April 2018, their employment agreements were amended to align the calculation of cash severance payable with that of the Severance Plan. Accordingly, severance calculations under the amended employment agreements include a target annual bonus (in addition to base salary) and a prorated annual target bonus for the year of termination. Severance payments will be paid in a lump sum to the extent allowable under Section 409A.
Executive Compensation Recoupment (Clawback) Policy
The clawback policy authorizes the Committee to determine whether to require recoupment of performance-based incentive compensation actually paid or awarded to any executive officer if certain conditions are met. For purposes of this policy, performance-based compensation includes all annual incentives for periods beginning with the 2014 fiscal year and long-term incentives awarded after January 1, 2014,incentive awards, whether paid in cash or equity, to the extent the awards are determined based on the Company's financial performance.
The Committee may require recoupment if the executive officer engaged in fraud or intentional misconduct that caused or contributed to the need for a material restatement of the Company's financial statements filed with the SEC. If the Committee determines that any performance-based compensation paid or awarded to the executive officer would not have been awarded or would have been awarded at a lower amount had it been calculated based on such restated financial statements (adjusted compensation), the Committee may seek to recover for the benefit of the Company the excess of the awarded compensation over the adjusted compensation (excess compensation). In deciding whether to seek recovery of excess compensation from the executive officer, the
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| Compensation Discussion and Analysis |
Committee will consider the factors it deems relevant under the circumstances and whether the assertion of a claim is in the best interests of the Company.
Executive Officer Stock Ownership Requirements
A fundamental objectiveOur stock ownership policy is an important feature of our compensation program is for executive officersphilosophy that helps to own AAM stock in order to align theirensure alignment of our executives' interests with those of our stockholders and to reinforce the importance of making sound long-term decisions.stockholders. The Company's current stock ownership requirements arerequirement for each executive is based on the executive's position as follows:described below.
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| | |
| | Multiple of Base Salary |
|
| Chief Executive Officer | 6 |
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| Chief Financial Officer; President | 3 |
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Senior Vice PresidentOther Executive Officers | 2 |
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Executive officers have five years from 2017 to meet these requirements or, for new executive officers, five years from the date of appointment. Shares owned directly, unvested RSUs and performance shares (at target) count toward the requirement while unexercised stock options are not included.requirement. These ownership levels must be maintained as long as the person is an executive officer of AAM. NEOs who have not met these requirements may not sell shares. The Committee annually reviews each executive officer’s stock ownership level according to this policy. Each NEO has met or is on track to meet the ownership requirements established for his position.
Anti-hedgingAnti-Hedging and Anti-pledgingAnti-Pledging Policy
AAM prohibits employees and non-employee directors from entering into transactions that may result in a financial benefit if our stock price declines, or any hedging transaction involving our stock, including but not limited to the use of financial derivatives, short sales or any similar transactions. Pledging of CompanyAAM stock is also prohibited.
Risk Assessment of Compensation Policies and Practices
We conducted an annual risk assessment for the Committee to determine whether the risks arising from our 2018 compensation practices are reasonably likely to have a material adverse effect on the Company. The risk assessment considered AAM’s annual and long-term incentive programs and pay mix, performance measures used to calculate payouts, and pay philosophy and governance. Our annual assessment focuses on the program for executive officers in light of their decision-making authority and influence, but also considers the compensation of other salaried associates. Our methodology was reviewed by the Committee and Meridian.
We have designed our compensation programs with specific features to address potential risks while rewarding our executive officers and other associates for achieving long-term financial and strategic objectives through prudent business judgment and appropriate risk taking. Based on our risk assessment and consideration of various mitigating factors, we concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.
Tax Deductibility of Compensation
In general, the compensation awarded to NEOs will be taxable to the executive and will give rise to a corresponding corporate deduction at the time the compensation is paid. Section 162(m) of the Code precludes a public corporation from taking(Section 162(m)) generally disallows a tax deduction to public companies for annual compensation in excess ofover $1 million paid to certain “covered employees.” Pursuant to the Tax Cuts and Jobs Act, enacted on December 22, 2017, the definition of “covered employees” under Section 162(m) includes a company's CEO, orCFO and the three other most highly compensated executive officers. Once an officer is a “covered employee,” the officer’s pay will remain subject to other NEOs other thanSection 162(m) for so long as the CFO. One exception applies toofficer is receiving compensation from the Company. Further, the Tax Cuts and Jobs Act repealed the exclusion for “qualified performance-based compensation” under Section 162(m) effective January 1, 2018, except for compensation paidpayable pursuant to stockholder-approved employee benefit plans. Performance-based compensation is compensationa written binding contract in place before November 2, 2017 that is paid only if the individual’s performance meets pre-established objective performance goals based on performance criteria approved by our stockholders.
Although deductibility of compensation is preferred, tax deductibility is not the primary objective of our compensation programs.materially modified thereafter (a grandfathered arrangement). The Committee may decide to pay compensation orCompany can no longer grant qualified performance-based compensation. Outstanding awards that serve the objectives of our executive compensation program even though such compensation or awards may not be deductible by the Company.
The annual incentives and long-term incentive performance share awards granted in 2016 to our NEOs are intended to comply withpreviously qualified for the performance-based compensation exemptionexclusion under Section 162(m). RSUs granted to NEOs in 2016, although may or may not deductible, were considered to be the appropriate vehicle for a portion of the long-term incentive component of our executive compensation program.qualify as grandfathered awards.
2017 Changes to Executive Compensation Program
In 2017, we made the following changes to our executive compensation program:
The Board proposed an amendment to the 2012 Omnibus Incentive Plan that included the following:
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◦ | Minimum one-year vesting of awards;Compensation Committee Report |
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◦ | Non-employee director pay limits; |
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◦ | Prohibition of share recycling on stock options; and |
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◦ | Prohibition of the payout of dividend equivalents before awards are vested. |
In anticipation of the proposed acquisition of MPG, the Committee approved a new custom peer group for benchmarking executive compensation that took into consideration the expected increase in projected AAM revenues. In February 2017, based on Meridian's benchmark analysis, the Committee approved adjustments to the components of NEO and non-employee director compensation which will not be implemented until the successful closing of the acquisition of MPG.
Increased stock ownership requirements for the CEO and certain other NEOs and increased stock ownership guidelines for non-employee directors.
Reconciliation of Non-GAAP and GAAP Information
AAM has included in this Amendment adjusted operating income margin, adjusted net operating cash flow and adjusted EBITDA, which are financial metrics used in our Incentive Compensation Plan for Executive Officers and the 2012 Omnibus Incentive Plan. These metrics are non-GAAP financial measures. Such information is reconciled to its closest GAAP measure in the tables below in accordance with Securities and Exchange Commission rules.
Management believes that these non-GAAP financial measures are useful to both management and its stockholders in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision-making purposes. Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, non-GAAP financial measures as presented by AAM may not be comparable to similarly titled measures reported by other companies.
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| 2016 Annual Incentive Performance Metrics |
| | Twelve Months Ended |
| | December 31, |
| | 2016 |
| Adjusted Operating Income Margin: | (in millions) |
| Operating income, as reported | $ | 380.7 |
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| Restructuring and acquisition-related costs | 26.2 |
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| Adjusted operating income | $ | 406.9 |
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| Net sales, as reported | $ | 3,948.0 |
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| Adjusted operating income margin | 10.31 | % |
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| Net Operating Cash Flow: | |
| Cash provided by operations, as reported | $ | 407.6 |
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| Purchases of property, plant and equipment | (223.0 | ) |
| Proceeds from sale of property, plant and equipment | 1.7 |
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| Proceeds from government grants | 2.8 |
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| Cash paid for restructuring and acquisition-related costs | 9.5 |
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| Net operating cash flow | $ | 198.6 |
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| 2014 Long-term Incentive Performance Metric |
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| | Twelve Months Ended |
| | December 31, |
| | 2016 | | 2015 | | 2014 |
| Earnings before interest expense, income taxes and depreciation and amortization (EBITDA) and Adjusted EBITDA: | (in millions) |
| Net income | $ | 240.7 |
| | $ | 235.6 |
| | $ | 143.0 |
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| Interest expense | 93.4 |
| | 99.2 |
| | 99.9 |
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| Income tax expense | 58.3 |
| | 37.1 |
| | 33.7 |
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| Depreciation and amortization | 201.8 |
| | 198.4 |
| | 199.9 |
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| EBITDA | $ | 594.2 |
| | $ | 570.3 |
| | $ | 476.5 |
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| Restructuring and acquisition-related costs | 26.2 |
| | — |
| | — |
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| Debt refinancing and redemption costs | — |
| | 0.8 |
| | — |
|
Non-recurring items(1) | (1.0 | ) | | — |
| | 35.5 |
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| Adjusted EBITDA | $ | 619.4 |
| | $ | 571.1 |
| | $ | 512.0 |
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| Net sales, as reported | $ | 3,948.0 |
| | $ | 3,903.1 |
| | $ | 3,696.0 |
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| | | | | | |
| Adjusted EBITDA margin | 15.7 | % | | 14.6 | % | | 13.9 | % |
| | | | | | |
| 3-year cumulative EBITDA margin | 14.7 | % | | | | |
(1) Includes for 2016 the impact of an investment gain related to the final distribution of the Reserve Yield Plus Fund. Also includes for 2014 the impact of a settlement charge related to certain terminated vested participants under our defined benefit U.S. pension plans.
COMPENSATION COMMITTEE REPORT |
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| Compensation Committee Report |
We have reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussion, we recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation CommitteeEmployment Agreements
Severance benefits are provided to Mr. Dauch and Mr. Simonte under the terms of each of their employment agreements. In connection with the adoption of the BoardSeverance Plan in April 2018, their employment agreements were amended to align the calculation of Directors
Elizabeth A. Chappell, Chair
William L. Kozyra
James A. McCaslin
Samuel Valenti III
SUMMARY COMPENSATION TABLE
The following table summarizescash severance payable with that of the compensation of our named executive officers (NEOs)Severance Plan. Accordingly, severance calculations under the amended employment agreements include a target annual bonus (in addition to base salary) and a prorated annual target bonus for the fiscal years ended December 31, 2016, December 31, 2015 and December 31, 2014year of termination. Severance payments will be paid in a lump sum to the extent they served as our NEOsallowable under Section 409A.
Executive Compensation Recoupment (Clawback) Policy
The clawback policy authorizes the Committee to determine whether to require recoupment of performance-based incentive compensation actually paid or awarded to any executive officer if certain conditions are met. For purposes of this policy, performance-based compensation includes all annual and long-term incentive awards, whether paid in cash or equity, to the extent the awards are based on the Company's financial performance.
The Committee may require recoupment if the executive officer engaged in fraud or intentional misconduct that caused or contributed to the need for a material restatement of the Company's financial statements filed with the SEC. If the Committee determines that any performance-based compensation paid or awarded to the executive officer would not have been awarded or would have been awarded at a lower amount had it been calculated based on such years.restated financial statements (adjusted compensation), the Committee may seek to recover for the benefit of the Company the excess of the awarded compensation over the adjusted compensation (excess compensation). In deciding whether to seek recovery of excess compensation from the executive officer, the
|
| | | | | | | | | | | | | | | | | |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards(2) ($) | Options Awards ($) | Non-Equity Incentive Plan Compen- sation(3) ($) | Change in Pension Value And Nonqualified Deferred Compensation Earnings(4) ($) | All Other Compen- sation(5) ($) | Total ($) |
David C. Dauch(1)Chairman & Chief Executive Officer | 2016 | 1,150,000 |
| — |
| 5,617,069 |
| — |
| 2,875,000 |
| 1,385,652 |
| 74,599 |
| 11,102,320 |
|
| 2015 | 1,150,000 |
| — |
| 5,348,595 |
| — |
| 5,447,875 |
| 1,201,615 |
| 67,131 |
| 13,215,216 |
|
| 2014 | 1,100,000 |
| — |
| 4,454,330 |
| — |
| 2,638,120 |
| 1,081,679 |
| 75,189 |
| 9,349,318 |
|
Christopher J. May
Vice President & Chief Financial Officer | 2016 | 391,667 |
| — |
| 488,450 |
| — |
| 480,000 |
| 231,058 |
| 47,641 |
| 1,638,816 |
|
| 2015 | 292,505 |
| — |
| 148,344 |
| — |
| 297,646 |
| 107,445 |
| 44,199 |
| 890,139 |
|
| | | | | | | | | |
Michael K. Simonte
President | 2016 | 640,000 |
| — |
| 1,797,486 |
| — |
| 1,280,000 |
| 397,940 |
| 50,836 |
| 4,166,262 |
|
| 2015 | 603,192 |
| — |
| 1,431,050 |
| — |
| 1,773,967 |
| 347,876 |
| 52,561 |
| 4,208,646 |
|
| 2014 | 560,100 |
| — |
| 1,296,049 |
| — |
| 961,046 |
| 375,597 |
| 52,666 |
| 3,245,458 |
|
| Alberto L. Satine President Driveline | 2016 | 510,000 |
| — |
| 934,146 |
| — |
| 814,500 |
| 280,651 |
| 58,130 |
| 2,597,427 |
|
| 2015 | 482,875 |
| — |
| 689,895 |
| — |
| 899,225 |
| 224,587 |
| 52,473 |
| 2,349,055 |
|
| 2014 | 450,000 |
| — |
| 624,777 |
| — |
| 498,640 |
| 237,798 |
| 41,032 |
| 1,852,247 |
|
Norman Willemse
President Metal Formed Products | 2016 | 450,000 |
| — |
| 824,283 |
| — |
| 720,000 |
| 236,980 |
| 33,925 |
| 2,265,188 |
|
| 2015 | 426,667 |
| — |
| 508,544 |
| — |
| 743,575 |
| 169,498 |
| 32,065 |
| 1,880,349 |
|
| 2014 | 375,767 |
| — |
| 445,473 |
| — |
| 445,467 |
| 135,322 |
| 48,459 |
| 1,450,488 |
|
|
| |
(1) | Compensation of Mr. Dauch is based solely on employment as an executive officer. He received no compensation for serving as a director.Discussion and Analysis |
Committee will consider the factors it deems relevant under the circumstances and whether the assertion of a claim is in the best interests of the Company.
Executive Officer Stock Ownership Requirements
Our stock ownership policy is an important feature of our compensation philosophy that helps to ensure alignment of our executives' interests with those of our stockholders. The stock ownership requirement for each executive is based on the executive's position as described below.
|
| | |
| Multiple of Base Salary |
|
| Chief Executive Officer | 6 |
|
| Chief Financial Officer; President | 3 |
|
| Other Executive Officers | 2 |
|
Executive officers have five years from 2017 to meet these requirements or, for new executive officers, five years from the date of appointment. Shares owned directly, unvested RSUs and performance shares (at target) count toward the requirement. These ownership levels must be maintained as long as the person is an executive officer of AAM. NEOs who have not met these requirements may not sell shares. The Committee annually reviews each executive officer’s stock ownership level according to this policy. Each NEO has met or is on track to meet the ownership requirements established for his position.
Anti-Hedging and Anti-Pledging Policy
AAM prohibits employees and non-employee directors from entering into transactions that may result in a financial benefit if our stock price declines, or any hedging transaction involving our stock, including the use of financial derivatives, short sales or any similar transactions. Pledging of AAM stock is also prohibited.
Risk Assessment of Compensation Policies and Practices
We conducted an annual risk assessment for the Committee to determine whether the risks arising from our 2018 compensation practices are reasonably likely to have a material adverse effect on the Company. The risk assessment considered AAM’s annual and long-term incentive programs and pay mix, performance measures used to calculate payouts, and pay philosophy and governance. Our annual assessment focuses on the program for executive officers in light of their decision-making authority and influence, but also considers the compensation of other salaried associates. Our methodology was reviewed by the Committee and Meridian.
We have designed our compensation programs with specific features to address potential risks while rewarding our executive officers and other associates for achieving long-term financial and strategic objectives through prudent business judgment and appropriate risk taking. Based on our risk assessment and consideration of various mitigating factors, we concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.
Tax Deductibility of Compensation
Section 162(m) of the Code (Section 162(m)) generally disallows a tax deduction to public companies for compensation over $1 million paid to certain “covered employees.” Pursuant to the Tax Cuts and Jobs Act, enacted on December 22, 2017, the definition of “covered employees” under Section 162(m) includes a company's CEO, CFO and the three other most highly compensated executive officers. Once an officer is a “covered employee,” the officer’s pay will remain subject to Section 162(m) for so long as the officer is receiving compensation from the Company. Further, the Tax Cuts and Jobs Act repealed the exclusion for “qualified performance-based compensation” under Section 162(m) effective January 1, 2018, except for compensation payable pursuant to a written binding contract in place before November 2, 2017 that is not materially modified thereafter (a grandfathered arrangement). The Company can no longer grant qualified performance-based compensation. Outstanding awards that previously qualified for the performance-based compensation exclusion under Section 162(m) may or may not qualify as grandfathered awards.
|
| |
(2) | Reflects the grant date fair value of restricted stock units and performance share awards made during fiscal year 2016 calculated in accordance with FASB ASC 718 (without any reduction for risk of forfeiture) as determined based on applying the assumptions used in our financial statements. See Note 7 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2016 regarding assumptions underlying the valuation of equity awards. Assuming the maximum performance levels are achieved for the performance share awards granted on March 4, 2016, the maximum value of performance share awards would be $6,072,014 for Mr. Dauch, $528,015 for Mr. May, $1,943,069 for Mr. Simonte, $1,009,801 for Mr. Satine and $891,052 for Mr. Willemse based on grant date fair value. These amounts may not reflect the actual value realized upon vesting or settlement, if any.Compensation Committee Report |
| |
(3) | Reflects amounts earned under the AAM Incentive Compensation Plan for Executive Officers for 2016. |
| |
(4) | Reflects the annualized increase in pension value under the Salaried Retirement Program, the Albion Pension Plan and the Supplemental Executive Retirement Program (SERP). See Pension Benefits Table below. There are no above-market or preferential earnings on compensation deferred under our Executive Deferred Compensation Plan.
|
(5) The components of All Other Compensation for 2016 are as follows: |
| | | | | | | | | | | | | | |
| Name | Employer 401(k) Match Contributions(a) ($) | Retirement Contributions(b) ($) | Executive Life Insurance Premiums(c) ($) | Company-Provided Vehicles(d) ($) | Tax Gross Ups for Spousal Travel(e) ($) | Other(f) ($) | Total ($) |
| David C. Dauch | 12,698 |
| 13,250 |
| 12,179 |
| 28,790 |
| 1,474 |
| 6,208 |
| 74,599 |
|
| Christopher J. May | 12,975 |
| 13,250 |
| 1,924 |
| 18,892 |
| — |
| 600 |
| 47,641 |
|
| Michael K. Simonte | 13,250 |
| 13,250 |
| 6,309 |
| 17,427 |
| — |
| 600 |
| 50,836 |
|
| Alberto L. Satine | 12,975 |
| 13,250 |
| 8,088 |
| 23,217 |
| — |
| 600 |
| 58,130 |
|
| Norman Willemse | 12,865 |
| 13,250 |
| 6,536 |
| — |
| 674 |
| 600 |
| 33,925 |
|
(a)Includes employer matching contributions under AAM’s 401(k) plan.
(b)Includes employer retirement contributions under AAM’s 401(k) plan.
(c)Includes executive life insurance premiums paid by the Company.
| |
(d) | Includes personal use of Company-provided vehicles. The aggregate incremental cost of Company-provided vehicles is based on total vehicle cost if business use of the vehicle is less than 50%. For Mr. Dauch, includes the cost of personal use of a second Company-provided vehicle. |
| |
(e)Compensation Committee Report | Includes amounts reimbursed for taxes attributable to |
We have reviewed and discussed the
income associated with the cost of travel for spouse accompanying the NEO to Company business meetings and events. | |
(f) | For Mr. Dauch, includes the cost of travel for spouse accompanying him to Company business meetings or events, personal umbrella liability insurance premiums, cost of an executive physical and meals provided during business hours. For Mr. May, Mr. Simonte, Mr. Satine and Mr. Willemse, includes the cost of personal umbrella liability insurance premiums. |
GRANTS OF PLAN-BASED AWARDS
Annual and long-term incentive awards granted in 2016 to the NEOs are shown in the following table. The annual and long-term incentive compensation programs are described in the Compensation Discussion and Analysis with management. Based on such review and discussion, we recommended to the Narrative to SummaryBoard that the Compensation TableDiscussion and Grants of Plan-Based Awards Table below.Analysis be included in this proxy statement.
|
| | | | | | | | | | | | | | | | | | |
| Name | Grant Date | Approval Date | Estimated Future Payouts under Non Equity Incentive Plan Awards(1) | Estimated Future Payouts under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units(3) (#) | Grant Date Fair Value of Stock and Option Awards(4) ($) |
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) |
| David C. Dauch | | | | | | | | | | |
| Annual Incentive | 1/1/2016 | 12/8/2015 | 718,750 |
| 1,437,500 |
| 2,875,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| 49,190 |
| 98,380 |
| 196,760 |
| — |
| 1,294,857 |
|
| Performance Shares (EBITDA) | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| 24,595 |
| 98,380 |
| 196,760 |
| — |
| 2,758,212 |
|
| Restricted Stock Units | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| — |
| — |
| — |
| 101,361 |
| 1,564,000 |
|
| Christopher J. May | | | | | | | | | | |
| Annual Incentive | 1/1/2016 | 12/8/2015 | 120,000 |
| 240,000 |
| 480,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/4/2016 | 2/3/2016 | | | | 4,278 |
| 8,555 |
| 17,110 |
| | 112,599 |
|
| Performance Shares (EBITDA) | 3/4/2016 | 2/3/2016 | | | | 2,139 |
| 8,555 |
| 17,110 |
| | 239,851 |
|
| Restricted Stock Units | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| — |
| — |
| — |
| 8,814 |
| 136,000 |
|
| Michael K. Simonte | | | | | | | | | | |
| Annual Incentive | 1/1/2016 | 12/8/2015 | 320,000 |
| 640,000 |
| 1,280,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| 15,741 |
| 31,482 |
| 62,964 |
| — |
| 414,359 |
|
| Performance Shares (EBITDA) | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| 7,871 |
| 31,482 |
| 62,964 |
| — |
| 882,639 |
|
| Restricted Stock Units | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| — |
| — |
| — |
| 32,436 |
| 500,488 |
|
| Alberto L. Satine | | | | | | | | | | |
| Annual Incentive | 1/1/2016 | 12/8/2015 | 204,000 |
| 408,000 |
| 816,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| 8,181 |
| 16,361 |
| 32,722 |
| — |
| 215,340 |
|
| Performance Shares (EBITDA) | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| 4,090 |
| 16,361 |
| 32,722 |
| — |
| 458,702 |
|
| Restricted Stock Units | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| — |
| — |
| — |
| 16,857 |
| 260,104 |
|
| Norman Willemse | | | | | | | | | | |
| Annual Incentive | 1/1/2016 | 12/8/2015 | 180,000 |
| 360,000 |
| 720,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| 7,219 |
| 14,437 |
| 28,874 |
| — |
| 190,017 |
|
| Performance Shares (EBITDA) | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| 3,609 |
| 14,437 |
| 28,874 |
| — |
| 404,760 |
|
| Restricted Stock Units | 3/4/2016 | 2/3/2016 | — |
| — |
| — |
| — |
| — |
| — |
| 14,874 |
| 229,506 |
|
| |
(1) | Reflects annual incentive awards granted under the AAM Incentive Compensation Plan for Executive Officers. |
| |
(2) | Reflects performance share awards granted under the 2012 Omnibus Incentive Plan. The awards are payable in common stock based on the Company's EBITDA margin and relative TSR performance, each weighted 50%, over the 3-year performance period January 1, 2016 through December 31, 2018. |
| |
(3) | Reflects RSUs granted under the 2012 Omnibus Incentive Plan. The awards are payable in common stock, contingent upon continued employment through the 3-year vesting period. No options were granted in 2016. |
| |
(4) | Reflects the full grant date fair value of performance share awards and RSUs made during fiscal year 2016 calculated in accordance with FASB ASC 718 (without any reduction for risk of forfeiture) as determined based on applying the assumptions used in our financial statements. See Note 7 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2016 regarding assumptions underlying the valuation of equity awards. |
Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements
Our employment agreements with Mr. Dauch as CEO and Mr. Simonte as President provide for the following compensation and benefits as of December 31, 2016:
|
| | |
| CEO Employment Agreement | President Employment Agreement |
Base Salary | $1,150,000 effective January 1, 2015, subject to annual review and increase by the Compensation Committee. | $640,000 effective August 1, 2015, subject to annual review and increase by the Compensation Committee. |
Annual Incentive | Participation in the annual incentive plan for executive officers. Target opportunity of 125% of base salary, subject to the annual review and increase by the Compensation Committee. | Participation in the annual incentive plan for executive officers. Target opportunity of 100% of base salary, subject to annual review and increase by the Compensation Committee. |
Long-Term Incentive | Participation in the long-term incentive plans for executive officers. Target opportunity of 400% for 2016, subject to annual review and increase by the Compensation Committee. | Participation in the long-term incentive plans for executive officers. Target opportunity of 230% for 2016, subject to annual review and increase by the Compensation Committee. |
Other Benefits | Participation in plans applicable to executive officers. Retiree medical, dental and vision coverage equivalent to the benefit levels offered in the Company's group health care plans for salaried associates as of September 1, 2012. | Participation in plans applicable to executive officers. |
Term | Initial term expired August 31, 2015. Additional one-year extensions unless either party provides 60 days' written notice of intent not to renew. | Initial term is August 1, 2015 through July 31, 2018. Additional one-year extensions unless either party provides 60 days' written notice of intent not to renew. |
Mr. Dauch and Mr. Simonte are also entitled to certain payments and benefits in the event of termination of employment under the scenarios described below in Potential Payments Upon Termination or Change in Control.
Annual Incentive Awards
In 2016, annual incentive awards were granted under the AAM Incentive Compensation Plan for Executive Officers. Net operating cash flow and operating income margin were selected as performance metrics for these awards. The maximum payout for each performance metric is 200%. See Annual Incentive Compensation in the CD&A.
Long-Term Incentive Awards
In 2016, the Company granted long-term incentive awards to NEOs in the form of RSUs and performance share awards. The terms of these awards are described in Long-Term Incentive Compensation in the CD&A.
2016 Awards Granted Under the 2012 Omnibus Incentive Plan
Restricted Stock Units (RSUs). The RSUs granted on March 4, 2016 to NEOs vest in three years. All RSUs are payable in common stock.
Performance Share Awards. The performance share awards granted to NEOs on March 4, 2016 are based upon the attainment of certain EBITDA margin performance targets and relative TSR over a three-year performance period beginning January 1, 2016 through December 31, 2018. The performance share awards represented 66% of the total LTI award opportunity for executive officers. One-half of the 2016 performance share payouts, or 33% of the total LTI award, earned will be measured by EBITDA margin performance and one-half, or 33% of the total LTI award, will be measured by relative TSR performance over a three-year period. TSR performance share payouts will be capped if the Company's TSR is negative for the three-year period. All performance shares are payable in common stock.
The following tables illustrate the threshold, target and maximum performance levels for determining 2016 award payouts for each performance measure.
|
| | | | | | | |
| | EBITDA Margin Performance Measure | | Relative TSR Performance Measure |
| Performance Level | 3-Year Cumulative EBITDA Margin | | Percent of Target Award Opportunity Earned | | Company TSR Percentile Rank | | Percent of Target Award Opportunity Earned |
| Threshold | 10% | | 25% | | 35th | | 50% |
| Target | 12% | | 100% | | 50th | | 100% |
| Maximum | 15% | | 200% | | 75th | | 200% |
Payout of 2014 Performance Share Awards
The performance period for performance shares granted in 2014 ended on December 31, 2016. The final number of shares earned was based on EBITDA margin and relative TSR over the three-year performance period as follows:
|
| | | | | | | |
| | Actual Performance | | %of Target Shares Earned | | Award Weighting | | Weighted Payout |
| EBITDA Margin | 14.7%(1) | | 191% | | 50% | | 96% |
| | | | | | | | |
| Relative TSR | 22nd percentile | | —% | | 50% | | —% |
| | | | Final Payout as a % of Target | | 96% |
(1) Excludes the impact of a settlement charge related to certain terminated vested participants under our defined benefit U.S. pension plans and restructuring and acquisition related costs. See Reconciliation of Non-GAAP and GAAP Information in the CD&A.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2016
|
| | | | | | | | | | | | |
| | Option Awards | Stock Awards |
| Name | Number of Securities Underlying Unexercised Options Exercisable(1) (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested(2) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market of Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(8) |
| David C. Dauch | 13,000 |
| 26.02 |
| 3/14/2017 |
| 66,447(3) | 1,282,427 |
| | |
| |
|
|
|
| | 58,070(4) | 1,120,751 |
| | |
| |
|
|
|
|
|
| 101,361(5) | 1,956,267 |
| | |
| | | | | | | 28,181(6) | 543,893 |
|
| | | | | | | 112,724(6) | 2,175,573 |
|
| | | | | | | 49,190(7) | 949,367 |
|
| | | | | | | 196,760(7) | 3,797,468 |
|
| Christopher J. May | — |
| — |
| — |
| 7,310(3) | 141,083 |
| | |
| | | | | 5,875(4) | 113,388 |
| | |
| | | | | 8,814(5) | 170,110 |
| | |
| | | | | | | 4,278(7) | 82,565 |
|
| | | | | | | 17,110(7) | 330,223 |
|
| Michael K. Simonte | 10,000 |
| 26.02 |
| 3/14/2017 |
| 19,334(3) | 373,146 |
| | |
| |
|
|
|
|
|
| 15,537(4) | 299,864 |
| | |
| |
|
|
|
|
|
| 32,436(5) | 626,015 |
| | |
| | | | | | | 7,540(6) | 145,522 |
|
| |
|
|
|
|
|
| | | 30,160(6) | 582,088 |
|
| | | | | | | 15,741(7) | 303,801 |
|
| | | | | | | 62,964(7) | 1,215,205 |
|
| Alberto L. Satine | 8,000 |
| 26.02 |
| 3/14/2017 |
| 9,320(3) | 179,876 |
| | |
| |
|
|
|
|
|
| 7,490(4) | 144,557 |
| | |
| | | | | 16,857(5) | 325,340 |
| | |
| | | | | | | 3,635(6) | 70,156 |
|
| | | | | |
| 14,540(6) | 280,622 |
|
| | | | | | | 8,181(7) | 157,893 |
|
| | | | | | | 32,722(7) | 631,535 |
|
| Norman Willemse | 9,700 |
| 10.08 |
| 6/25/2018 |
| 6,645(3) | 128,249 |
| | |
| |
|
|
|
|
|
| 5,521(4) | 106,555 |
| | |
| | | | | 14,874(5) | 287,068 |
| | |
| | | | | | | 2,680(6) | 51,724 |
|
| | | | | | | 10,718(6) | 206,857 |
|
| | | | | | | 7,219(7) | 139,327 |
|
| | | | | | | 28,874(7) | 557,268 |
|
| |
(1) | All outstanding options are vested as of December 31, 2016. |
| |
(2) | Reflects value of outstanding RSUs at $19.30, the closing price of AAM common stock on December 30, 2016. |
| |
(3) | Reflects RSUs granted on March 6, 2014 that vested on March 6, 2017. |
| |
(4) | Reflects RSUs granted on March 2, 2015. RSUs vest three years from the date of grant. |
| |
(5) | Reflects RSUs granted on March 4, 2016. RSUs vest three years from the date of grant. |
| |
(6) | Reflects performance shares granted on March 2, 2015 for the performance period January 1, 2015 through December 31, 2017 that would be paid out at the end of the performance period based on actual performance through December 31, 2016. The TSR award amounts reflect a threshold payout and the EBITDA award amounts reflect a maximum payout. Payouts will be determined at the end of the performance period based on actual performance. |
| |
(7) | Reflects performance shares granted on March 4, 2016 for the performance period January 1, 2016 through December 31, 2018 that would be paid out at the end of the performance period based on actual performance through December 31, 2016. The TSR award amounts reflect a threshold payout and the EBITDA award amounts reflect a maximum payout. Payouts will be determined at the end of the performance period based on actual performance. |
| |
(8) | Reflects the value of 2015 and 2016 performance shares based on performance through December 31, 2016 as described above in footnotes (6) and (7) multiplied by $19,30, the closing price of AAM common stock on December 30, 2016. |
OPTIONS EXERCISED AND STOCK VESTED
|
| | | | | | | | |
| Option Awards | Stock Awards |
| Name | Number of Shares Acquired on Exercise (1) (#) | Value Realized on Exercise (1) ($) | Number of Shares Acquired on Vesting(2) (#) | Value Realized on Vesting(3) ($) |
| David C. Dauch | — |
| — |
| 260,869 |
| 4,501,923 |
|
| Christopher J. May | — |
| — |
| 9,678 |
| 149,332 |
|
| Michael K. Simonte | — |
| — |
| 78,628 |
| 1,351,939 |
|
| Alberto L. Satine | — |
| — |
| 34,273 |
| 595,698 |
|
| Norman Willemse | — |
| — |
| 24,909 |
| 432,024 |
|
| |
(1) | No stock options were exercised by the NEOs in 2016. |
| |
(2) | Reflects the number of shares vested in March 2016 under RSU awards granted in March 2013. Also, includes the number of performance shares earned for the performance period ending December 31, 2016 due to performance criteria being satisfied. |
| |
(3) | Reflects the number of shares underlying vested RSUs multiplied by the closing market price of AAM common stock on the vesting date. Also, includes the number of performance shares earned for the period ending December 31, 2016 multiplied by the closing market price of AAM common stock at December 30, 2016. |
PENSION BENEFITS
The NEOs are eligible to participate in pension plans that provide benefits based on years of service and pay. The following table shows the value of the benefits accumulated by the NEOs and their years of credited service under AAM’s Salaried Retirement Program (SRP), the Albion Pension Plan and AAM’s Supplemental Executive Retirement Program (SERP), each effective as of December 31, 2016.
|
| | | | |
| Name | Plan Name | Number of Years of Credited Service(1) (#) | Present Value of Accumulated Benefit(2) ($) |
| David C. Dauch | AAM Retirement Program for Salaried Employees | 11.5000 | 364,791 |
|
| AAM Supplemental Executive Retirement Program | 21.5000 | 5,172,154 |
|
| Christopher J. May | AAM Retirement Program for Salaried Employees | 12.5000 | 158,884 |
|
| AAM Supplemental Executive Retirement Program | 22.5000 | 620,619 |
|
| Michael K. Simonte | AAM Retirement Program for Salaried Employees | 8.0833 | 243,377 |
|
| AAM Supplemental Executive Retirement Program | 18.0833 | 1,868,966 |
|
Alberto L. Satine(3) | AAM Retirement Program for Salaried Employees | 10.5833 | 652,737 |
|
| AAM Supplemental Executive Retirement Program | 15.5833 | 770,951 |
|
Norman Willemse(4) | Albion Pension Plan | 6.3333 | 313,773 |
|
| AAM Supplemental Executive Retirement Program | 15.5000 | 815,834 |
|
| |
(1) | The years of credited service are through December 31, 2016. Benefits under the SRP were frozen effective December 31, 2006 for Mr. Dauch, Mr. May and Mr. Simonte. Benefits under the SRP were frozen effective December 31, 2011 for Mr. Satine. As a result, credited service under the SRP is less than actual service with the Company. Credited service under the SERP reflects actual years of service with the Company, including for Mr. Willemse his years of service with our UK subsidiary, Albion Automotive Limited. |
| |
(2) | The values shown are based on benefits deferred to the earliest age at which unreduced benefits are payable. The assumptions used to calculate the actuarial present value of accumulated benefits are the same assumptions used in our audited consolidated financial statements for the fiscal year ended December 31, 2016 and assume continued employment until unreduced retirement age is attained. For material assumptions used, see Note 6 to the audited consolidated financial statements in our annual report on Form 10-K for the fiscal year ended December 31, 2016. |
| |
(3) | Mr. Satine was eligible to retire on December 31, 2016 under both the SRP and the SERP. He qualifies for a reduced benefit of approximately 88% of the unreduced benefit under the SRP and the lump sum benefit under the SERP. |
| |
(4) | Mr. Willemse is not a participant in the SRP. Mr. Willemse was eligible to retire on December 31, 2016 under both the Albion Pension Plan and the SERP. He qualifies for the lump sum benefit under the SERP. |
Salaried Retirement Program (SRP). The annual retirement benefit payable to each executive, commencing on retirement at or after age 65, equals the sum of the executive’s contributions plus an additional benefit based on the executive’s average monthly salary (determined as the average of the executive’s base salary in the highest 60 months during his final 10 years of service) and years of credited service. Benefits under the SRP may be paid as a single life annuity or, upon election, in the form of a joint and survivor annuity with a reduction in the amount of the annual benefit. The SRP is a qualified plan subject to Internal Revenue Code (IRC) limitations on benefits and is subject to Employee Retirement Income Security Act of 1974.
Effective December 31, 2006, the SRP was amended to freeze benefits at current levels for associates who were not eligible to retire by December 1, 2011. Associates who were eligible for early or normal retirement on or before December 31, 2011 continued to accrue benefits through December 31, 2011.
Albion Pension Plan. Our Albion Automotive Limited subsidiary provides pension benefits under the Albion Pension Plan for its salaried associates. Mr. Willemse is a participant in this plan based on his former employment with this subsidiary. The annual retirement benefit payable, commencing on retirement at or after age 65, is based on the participant's average salary (as defined in the plan during the final 10 years of service with Albion Automotive Limited), years of pensionable service and the percentage of participant contributions made to the plan. The participant may elect benefits to be in the form of an annuity or to receive a portion of the benefit payable in a lump sum.
Supplemental Executive Retirement Program (SERP). Executive officers who are grandfathered under the SRP are eligible to receive the basic form of pension benefit under the SERP upon retirement. In addition, the executive may be eligible to receive the alternative form of benefit, if greater than the basic benefit, upon retirement at or after age 62. The executive must have at least 10 years of credited service to receive either form of benefit under the SERP.
The total monthly benefit payable under the basic form of SERP is equal to the following amount:
Two percent of the executive’s average monthly salary calculated as of December 31, 2011 (as determined for the SRP excluding the limitations as specified under the IRC), multiplied by the executive’s years of credited service; less
The benefit payable to the executive under the SRP (without reduction for survivor benefits), plus 2% of the maximum monthly social security benefit payable at age 65 multiplied by the executive’s years of credited service.
The Compensation Committee has discretion to reduce or eliminate the amount payable under the alternative form of benefit. Subject to the Compensation Committee’s discretion, the total monthly benefit payable under the alternative form of SERP is equal to the following amount:
1.5% of the executive’s average monthly salary calculated as of December 31, 2011 (as determined for the SRP excluding the limitations as specified under the IRC) and average monthly incentive compensation as of December 31, 2011 (determined as the average of the highest five of the executive’s last 10 annual cash incentive awards, divided by 12) multiplied by the executive’s years of credited service; less
The benefit payable to the executive under the SRP (without reduction for survivor benefits), plus the maximum monthly social security benefit payable at age 65.
SERP benefits payable under the basic and alternative forms are generally paid as a single life annuity. If the executive’s spouse is eligible for survivor benefits under the SRP; however, the executive’s monthly SERP benefit will be reduced and paid in the form of a joint and survivor annuity.
Mr. Dauch, Mr. May, Mr. Simonte and Mr. Willemse, who are not grandfathered under the SRP, are eligible to receive a benefit under the current SERP formula, payable six months after retirement in a lump sum. As a grandfathered participant, Mr. Satine may alternatively be eligible to receive a benefit under the current SERP formula if this benefit is greater than that under the basic or alternative benefit described above. Under the current SERP formula, the amount of the benefit will be equal to 12.5% of the executive’s final average compensation (determined as the executive’s average annual base salary and cash incentive for the highest five consecutive years), multiplied by the executive’s years of credited service, less the sum of the actuarial equivalent value of the executive’s benefits payable under the SRP, Albion Pension Plan and the balance of the executive’s employer retirement contribution account under AAM’s 401(k) plan.
NONQUALIFIED DEFERRED COMPENSATION
The following table summarizes deferred compensation of NEOs under the Executive Deferred Compensation Plan for the 2016 fiscal year.
|
| | | | | | | | | | |
| Name | Executive Contributions in Last FY ($) | Registrant contributions in Last FY ($) | Aggregate Earnings In Last FY(1) ($) | Aggregate Withdrawals Distributions ($) | Aggregate Balance at Last FYE(2) ($) |
| David C. Dauch | — |
| — |
| 15,219 |
| — |
| 400,741 |
|
| Christopher J. May | — |
| — |
| — |
| — |
| — |
|
| Michael K. Simonte | — |
| — |
| — |
| — |
| — |
|
| Alberto L. Satine | — |
| — |
| — |
| — |
| — |
|
| Norman Willemse | — |
| — |
| 14,847 |
| — |
| 141,550 |
|
| |
(1) | Reflects hypothetical accrued earnings or losses during 2016 on notional investments designed to track the performance of funds similar to those available to participants in the Company’s 401(k) plan. None of the earnings shown in this column are reported as compensation in the Summary Compensation Table.
|
| |
(2) | Of the aggregate balance, the amounts reflect compensation previously reported in the Summary Compensation Table for each of the NEOs.
|
Under AAM’s Executive Deferred Compensation Plan, a nonqualified, tax-deferred savings plan, certain executives, including the NEOs, may elect to defer payment of 6% to 75% of their base salary and/or their annual incentive award during any plan year. Base salary deferred into the plan receives a 3% Company match. Matching contributions are vested after five years of credited service. The amounts deferred are unfunded and unsecured obligations of AAM.
Amounts deferred or credited into this plan are represented in the executive’s notional account and are “invested” among funds similar to those available under AAM’s 401(k) plan. Although the executive has no actual or constructive ownership of shares in the investment funds, the return on the executive’s account is determined as if the amounts were notionally invested in these funds.
The table below shows the investment fund options available under the Executive Deferred Compensation Plan and the annual rates of return for the calendar year ended December 31, 2016.
|
| | | | | |
| Name of Fund | Rate of Return | Name of Fund | Rate of Return |
| Fidelity Retirement Money Market Portfolio | 0.05 | % | Vanguard External Market Index Fund | 16.13 | % |
| PIMCO Total Return Fund | 2.60 | % | Harding Loevner Institutional Emerging Market Fund | 13.27 | % |
| PIMCO High Yield Fund | 12.70 | % | Fidelity Freedom Income K Fund | 5.18 | % |
| Dreyfus International Bond Fund | 1.91 | % | Fidelity Freedom K 2005 Fund | 5.94 | % |
| Vanguard Total Bond Market Fund | 2.60 | % | Fidelity Freedom K 2010 Fund | 6.57 | % |
| Domini Impact Equity Fund | 11.55 | % | Fidelity Freedom K 2015 Fund | 7.10 | % |
| Fidelity 500 Index Fund | 11.93 | % | Fidelity Freedom K 2020 Fund | 7.40 | % |
| Touchstone Value Y Fund | 13.52 | % | Fidelity Freedom K 2025 Fund | 7.59 | % |
| T. Rowe Price Growth Stock Fund | 1.41 | % | Fidelity Freedom K 2030 Fund | 8.25 | % |
| Fidelity Growth Company Fund | 6.01 | % | Fidelity Freedom K 2035 Fund | 8.72 | % |
| Fidelity Low-Priced Stock Fund | 8.88 | % | Fidelity Freedom K 2040 Fund | 8.72 | % |
| Nuveen Mid Cap Growth Opportunities | 1.56 | % | Fidelity Freedom K 2045 Fund | 8.79 | % |
| American Beacon Small Cap Value Fund | 26.77 | % | Fidelity Freedom K 2050 Fund | 8.71 | % |
| PNC Small Cap Fund | 10.04 | % | Fidelity Freedom K 2055 Fund | 8.77 | % |
| Fidelity Diversified International Fund | (3.60 | )% | Fidelity Freedom K 2060 Fund | 8.74 | % |
| Fidelity International Index Fund | 1.30 | % | | |
Distributions can be received (1) upon retirement in a lump sum or in annual payments over a period of five or ten years, (2) in a lump sum upon death, disability, termination of employment or change in control or (3) if elected by the participant, during employment at a specified date after a minimum deferral period. The minimum deferral period is at least three years following the end of the plan year to which the deferral election relates and distributions during employment consist of participant deferrals and related earnings or losses (not Company contributions and related earnings or losses).
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following tables show the estimated potential payments and benefits that each of the NEOs would receive upon termination of employment under various circumstances that would trigger payments under applicable employment agreements and the Company’s plans and programs, assuming the termination event occurred on December 31, 2016. Although the calculations are intended to provide reasonable estimates of the potential payments, they are based on numerous assumptions and may not represent the actual amounts these NEOs would receive upon each termination event.
Employment Agreements
Severance benefits are provided to Mr. Dauch and Mr. Simonte under the terms of each of their employment agreements. In connection with the adoption of the Severance Plan in April 2018, their employment agreements were amended to align the calculation of cash severance payable with that of the Severance Plan. Accordingly, severance calculations under the amended employment agreements include a target annual bonus (in addition to base salary) and a prorated annual target bonus for the year of termination. Severance payments will be paid in a lump sum to the extent allowable under Section 409A.
Executive Compensation Recoupment (Clawback) Policy
The clawback policy authorizes the Committee to determine whether to require recoupment of performance-based incentive compensation actually paid or awarded to any executive officer if certain conditions are met. For purposes of this policy, performance-based compensation includes all annual and long-term incentive awards, whether paid in cash or equity, to the extent the awards are based on the Company's financial performance.
The Committee may require recoupment if the executive officer engaged in fraud or intentional misconduct that caused or contributed to the need for a material restatement of the Company's financial statements filed with the SEC. If the Committee determines that any performance-based compensation paid or awarded to the executive officer would not have been awarded or would have been awarded at a lower amount had it been calculated based on such restated financial statements (adjusted compensation), the Committee may seek to recover for the benefit of the Company the excess of the awarded compensation over the adjusted compensation (excess compensation). In deciding whether to seek recovery of excess compensation from the executive officer, the
|
| |
| Compensation Discussion and Analysis |
Committee will consider the factors it deems relevant under the circumstances and whether the assertion of a claim is in the best interests of the Company.
Executive Officer Stock Ownership Requirements
Our stock ownership policy is an important feature of our compensation philosophy that helps to ensure alignment of our executives' interests with those of our stockholders. The stock ownership requirement for each executive is based on the executive's position as described below.
|
| | |
| Multiple of Base Salary |
|
| Chief Executive Officer | 6 |
|
| Chief Financial Officer; President | 3 |
|
| Other Executive Officers | 2 |
|
Executive officers have five years from 2017 to meet these requirements or, for new executive officers, five years from the date of appointment. Shares owned directly, unvested RSUs and performance shares (at target) count toward the requirement. These ownership levels must be maintained as long as the person is an executive officer of AAM. NEOs who have not met these requirements may not sell shares. The Committee annually reviews each executive officer’s stock ownership level according to this policy. Each NEO has met or is on track to meet the ownership requirements established for his position.
Anti-Hedging and Anti-Pledging Policy
AAM prohibits employees and non-employee directors from entering into transactions that may result in a financial benefit if our stock price declines, or any hedging transaction involving our stock, including the use of financial derivatives, short sales or any similar transactions. Pledging of AAM stock is also prohibited.
Risk Assessment of Compensation Policies and Practices
We conducted an annual risk assessment for the Committee to determine whether the risks arising from our 2018 compensation practices are reasonably likely to have a material adverse effect on the Company. The risk assessment considered AAM’s annual and long-term incentive programs and pay mix, performance measures used to calculate payouts, and pay philosophy and governance. Our annual assessment focuses on the program for executive officers in light of their decision-making authority and influence, but also considers the compensation of other salaried associates. Our methodology was reviewed by the Committee and Meridian.
We have designed our compensation programs with specific features to address potential risks while rewarding our executive officers and other associates for achieving long-term financial and strategic objectives through prudent business judgment and appropriate risk taking. Based on our risk assessment and consideration of various mitigating factors, we concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.
Tax Deductibility of Compensation
Section 162(m) of the Code (Section 162(m)) generally disallows a tax deduction to public companies for compensation over $1 million paid to certain “covered employees.” Pursuant to the Tax Cuts and Jobs Act, enacted on December 22, 2017, the definition of “covered employees” under Section 162(m) includes a company's CEO, CFO and the three other most highly compensated executive officers. Once an officer is a “covered employee,” the officer’s pay will remain subject to Section 162(m) for so long as the officer is receiving compensation from the Company. Further, the Tax Cuts and Jobs Act repealed the exclusion for “qualified performance-based compensation” under Section 162(m) effective January 1, 2018, except for compensation payable pursuant to a written binding contract in place before November 2, 2017 that is not materially modified thereafter (a grandfathered arrangement). The Company can no longer grant qualified performance-based compensation. Outstanding awards that previously qualified for the performance-based compensation exclusion under Section 162(m) may or may not qualify as grandfathered awards.
|
| |
| Compensation Committee Report |
|
|
| Compensation Committee Report |
We have reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussion, we recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation Committee of the Board of Directors
James A. McCaslin, Chair
William L. Kozyra
Peter D. Lyons
Sandra E. Pierce
Samuel Valenti III
|
| |
| Executive Compensation Tables |
|
|
| Executive Compensation Tables |
Summary Compensation Table
The following table summarizes the compensation of our named executive officers (NEOs) for the fiscal years ended December 31, 2018, December 31, 2017 and December 31, 2016 to the extent they served as NEOs in such years.
|
| | | | | | | | | | | | | | | | | |
Name and Principal Position | Year | Salary ($) |
| Bonus ($) |
| Stock Awards(2) ($) |
| Options Awards ($) |
| Non-Equity Incentive Plan Compen- sation(3) ($) |
| Change in Pension Value And Nonqualified Deferred Compensation Earnings(4) ($) |
| All Other Compen- sation(5) ($) |
| Total ($) |
|
David C. Dauch(1) Chairman & Chief Executive Officer | 2018 | 1,150,000 |
| — |
| 5,700,848 |
| — |
| 1,350,700 |
| 1,168,373 |
| 99,378 |
| 9,469,299 |
|
| 2017 | 1,150,000 |
| — |
| 7,319,937 |
| — |
| 2,819,000 |
| 1,869,698 |
| 86,982 |
| 13,245,617 |
|
| 2016 | 1,150,000 |
| — |
| 5,617,069 |
| — |
| 2,875,000 |
| 1,385,652 |
| 74,599 |
| 11,102,320 |
|
Christopher J. May
Vice President & Chief Financial Officer | 2018 | 550,000 |
| — |
| 1,363,250 |
| — |
| 382,800 |
| 278,969 |
| 47,939 |
| 2,622,958 |
|
| 2017 | 478,003 |
| — |
| 582,790 |
| — |
| 693,800 |
| 397,791 |
| 44,586 |
| 2,196,970 |
|
| 2016 | 391,667 |
| — |
| 488,450 |
| — |
| 480,000 |
| 231,058 |
| 47,641 |
| 1,638,816 |
|
Michael K. Simonte
President | 2018 | 750,000 |
| — |
| 2,230,775 |
| — |
| 652,500 |
| 517,163 |
| 66,424 |
| 4,216,862 |
|
| 2017 | 727,300 |
| — |
| 2,144,593 |
| — |
| 1,387,500 |
| 720,741 |
| 56,779 |
| 5,036,913 |
|
| 2016 | 640,000 |
| — |
| 1,797,486 |
| — |
| 1,280,000 |
| 397,940 |
| 50,836 |
| 4,166,262 |
|
Alberto L. Satine President Electrification(6) | 2018 | 610,000 |
| — |
| 1,209,580 |
| — |
| 424,600 |
| 250,024 |
| 61,972 |
| 2,556,176 |
|
| 2017 | 588,825 |
| — |
| 1,114,572 |
| — |
| 902,800 |
| 482,501 |
| 59,099 |
| 3,147,797 |
|
| 2016 | 510,000 |
| — |
| 934,146 |
| — |
| 814,500 |
| 280,651 |
| 58,130 |
| 2,597,427 |
|
Norman Willemse
President Metal Forming(7) | 2018 | 530,000 |
| — |
| 1,050,955 |
| — |
| 368,900 |
| 227,486 |
| 50,203 |
| 2,227,544 |
|
| 2017 | 513,378 |
| — |
| 983,438 |
| — |
| 784,400 |
| 380,281 |
| 34,521 |
| 2,696,018 |
|
| 2016 | 450,000 |
| — |
| 824,283 |
| — |
| 720,000 |
| 236,980 |
| 33,925 |
| 2,265,188 |
|
| |
| (1) | Compensation of Mr. Dauch is based solely on employment as an executive officer. He received no compensation for serving as a director. |
| |
| (2) | Reflects the grant date fair value of restricted stock units and performance share awards made during fiscal year 2018 calculated in accordance with FASB ASC 718 (without any reduction for risk of forfeiture) as determined based on applying the assumptions used in our financial statements. See Note 10 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2018 regarding assumptions underlying the valuation of equity awards. Assuming the maximum performance levels are achieved for the performance share awards granted on March 2, 2018, the maximum value of performance share awards would be $7,590,048 for Mr. Dauch, $1,814,988 for Mr. May, $2,970,012 for Mr. Simonte, $1,610,441 for Mr. Satine and $1,399,212 for Mr. Willemse based on grant date fair value. These amounts may not reflect the actual value realized upon vesting or settlement, if any. |
| |
| (3) | Reflects amounts earned under the AAM Incentive Compensation Plan for Executive Officers for 2018. |
| |
| (4) | Reflects the annualized increase in pension value under the Salaried Retirement Program, the Albion Pension Plan and the Supplemental Executive Retirement Program (SERP). See Pension Benefits Table. There are no above-market or preferential earnings on compensation deferred under our Executive Deferred Compensation Plan. |
|
| |
| Executive Compensation Tables |
| |
| (5) | The components of All Other Compensation for 2018 are as follows: |
|
| | | | | | | | | | | | | | |
| Name | Employer 401(k) Match Contributions(a) ($) |
| Retirement Contributions(b) ($) |
| Executive Life Insurance Premiums(c) ($) |
| Company-Provided Vehicles(d) ($) |
| Tax Gross Ups for Spousal Travel(e) ($) |
| Other(f) ($) |
| Total ($) |
|
| David C. Dauch | 13,750 |
| 13,750 |
| 13,690 |
| 32,016 |
| 9,554 |
| 16,618 |
| 99,378 |
|
| Christopher J. May | 13,750 |
| 13,750 |
| 3,229 |
| 16,587 |
| — |
| 623 |
| 47,939 |
|
| Michael K. Simonte | 13,750 |
| 13,750 |
| 8,510 |
| 26,976 |
| — |
| 3,438 |
| 66,424 |
|
| Alberto L. Satine | 13,750 |
| 13,750 |
| 11,884 |
| 20,555 |
| — |
| 2,033 |
| 61,972 |
|
| Norman Willemse | 13,583 |
| 13,750 |
| 10,526 |
| 11,721 |
| — |
| 623 |
| 50,203 |
|
(a)Includes employer matching contributions under AAM’s 401(k) plan.
(b)Includes employer retirement contributions under AAM’s 401(k) plan.
(c)Includes executive life insurance premiums paid by the Company.
| |
| (d) | Includes personal use of Company-provided vehicles. The aggregate incremental cost of Company-provided vehicles is based on total vehicle cost if business use of the vehicle is less than 50%. For Mr. Dauch, includes the cost of personal use of a second Company-provided vehicle. |
| |
| (e) | Includes amounts reimbursed for taxes attributable to the income associated with the cost of travel for spouse accompanying the NEO to Company business meetings and events. |
| |
| (f) | For Mr. Dauch, includes $11,772 for the cost of travel for spouse accompanying him to Company business meetings or events, personal umbrella liability insurance premiums, cost of an executive physical and meals provided during business hours. For Mr. Simonte and Mr. Satine, includes the cost of personal umbrella liability insurance premiums and the cost of an executive physical. For Mr. May and Mr. Willemse, includes the cost of personal umbrella liability insurance premiums. |
(6) Effective January 16, 2019, Mr. Satine's title was changed to Senior Vice President Special Projects.
(7) Mr. Willemse was not an NEO in 2017.
|
| |
| Executive Compensation Tables |
Grants of Plan-Based Awards
Annual and long-term incentive awards granted in 2018 to the NEOs are shown in the following table. The annual and long-term incentive compensation programs are described in the Compensation Discussion and Analysis and the Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table.
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Future Payouts under Non Equity Incentive Plan Awards(1) | Estimated Future Payouts under Equity Incentive Plan Awards(2) | | |
| Name | Grant Date |
| Approval Date |
| Threshold ($) |
| Target ($) |
| Maximum ($) |
| Threshold (#) |
| Target (#) |
| Maximum (#) |
| All Other Stock Awards: Number of Shares of Stock or Units(3) (#) |
| Grant Date Fair Value of Stock and Option Awards(4) ($) |
|
| David C. Dauch | | | | | | | | | | |
| Annual Incentive | — |
| — |
| 776,250 |
| 1,552,500 |
| 3,105,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 66,440 |
| 132,879 |
| 265,758 |
| — |
| 1,848,347 |
|
| Performance Shares (Free Cash Flow) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 66,440 |
| 132,879 |
| 265,758 |
| — |
| 1,897,512 |
|
| Restricted Stock Units | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| — |
| — |
| — |
| 136,904 |
| 1,954,989 |
|
| Christopher J. May | | | | | | | | | | |
| Annual Incentive | — |
| — |
| 220,000 |
| 440,000 |
| 880,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 15,888 |
| 31,775 |
| 63,550 |
| — |
| 441,990 |
|
| Performance Shares (Free Cash Flow) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 15,888 |
| 31,775 |
| 63,550 |
| — |
| 453,747 |
|
| Restricted Stock Units | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| — |
| — |
| — |
| 32,739 |
| 467,513 |
|
| Michael K. Simonte | | | | | | | | | | |
| Annual Incentive | — |
| — |
| 375,000 |
| 750,000 |
| 1,500,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 25,998 |
| 51,996 |
| 103,992 |
| — |
| 723,264 |
|
| Performance Shares (Free Cash Flow) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 25,998 |
| 51,996 |
| 103,992 |
| — |
| 742,503 |
|
| Restricted Stock Units | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| — |
| — |
| — |
| 53,572 |
| 765,008 |
|
| Alberto L. Satine | | | | | | | | | | |
| Annual Incentive | — |
| — |
| 244,000 |
| 488,000 |
| 976,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 14,097 |
| 28,194 |
| 56,388 |
| — |
| 392,179 |
|
| Performance Shares (Free Cash Flow) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 14,097 |
| 28,194 |
| 56,388 |
| — |
| 402,610 |
|
| Restricted Stock Units | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| — |
| — |
| — |
| 29,047 |
| 414,791 |
|
| Norman Willemse | | | | | | | | | | |
| Annual Incentive | — |
| — |
| 212,000 |
| 424,000 |
| 848,000 |
| — |
| — |
| — |
| — |
| — |
|
| Performance Shares (TSR) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 12,248 |
| 24,496 |
| 48,992 |
| — |
| 340,739 |
|
| Performance Shares (Free Cash Flow) | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| 12,248 |
| 24,496 |
| 48,992 |
| — |
| 349,803 |
|
| Restricted Stock Units | 3/2/2018 | 2/7/2018 | — |
| — |
| — |
| — |
| — |
| — |
| 25,239 |
| 360,413 |
|
| |
| (1) | Reflects annual incentive awards granted under the AAM Incentive Compensation Program for Executive Officers. |
| |
| (2) | Reflects performance share awards granted under the 2012 Omnibus Incentive Plan. The awards are payable in common stock based on the Company's free cash flow and relative TSR performance, each weighted 50%, over the 3-year performance period January 1, 2018 through December 31, 2020. |
| |
| (3) | Reflects RSUs granted under the 2012 Omnibus Incentive Plan. The awards are payable in common stock, contingent upon continued employment through the 3-year vesting period. No options were granted in 2018. |
| |
| (4) | Reflects the full grant date fair value of performance share awards and RSUs made during fiscal year 2018 calculated in accordance with FASB ASC 718 (without any reduction for risk of forfeiture) as determined based on applying the assumptions used in our financial statements. See Note 10 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2018 regarding assumptions underlying the valuation of equity awards. |
|
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| Executive Compensation Tables |
Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements
Our employment agreements with Mr. Dauch as CEO and Mr. Simonte as President provide for the following compensation and benefits as of December 31, 2018.
|
| | |
| CEO Employment Agreement | President Employment Agreement |
| Base Salary | $1,150,000 for 2018, subject to annual review and increase by the Compensation Committee | $750,000 for 2018, subject to annual review and increase by the Compensation Committee |
| Annual Incentive | Participation in the annual incentive plan for executive officers. Target opportunity of 135% of base salary for 2018, subject to annual review and increase by the Compensation Committee | Participation in the annual incentive plan for executive officers. Target opportunity of 100% of base salary for 2018, subject to annual review and increase by the Compensation Committee |
| Long-Term Incentive | Participation in the long-term incentive plans for executive officers. Target opportunity of 500% for 2018, subject to annual review and increase by the Compensation Committee | Participation in the long-term incentive plans for executive officers. Target opportunity of 300% for 2018, subject to annual review and increase by the Compensation Committee |
| Other Benefits | Participation in plans applicable to executive officers. Retiree medical, dental and vision coverage equivalent to the benefit levels offered in the Company's group health care plans for salaried associates as of September 1, 2012 | Participation in plans applicable to executive officers |
| Term | Initial term expired August 31, 2015. Additional one-year extensions unless either party provides 60 days' written notice of intent not to renew | Initial term expired July 31, 2018. Additional one-year extensions unless either party provides 60 days' written notice of intent not to renew |
Mr. Dauch and Mr. Simonte are also entitled to certain payments and benefits in the event of termination of employment under the scenarios described below in Potential Payments Upon Termination or Change in Control.
Annual Incentive Awards
In 2018, annual incentive awards were granted under the AAM Incentive Compensation Program for Executive Officers. Absolute EBITDA was selected as sole performance metric for these awards. The maximum payout for each performance metric is 200%. See Annual Incentive Compensation in the CD&A.
Long-Term Incentive Awards
In 2018, the Company granted long-term incentive awards to NEOs in the form of RSUs and performance share awards. The terms of these awards are described in Long-Term Incentive Compensation in the CD&A.
2018 Awards Granted Under the 2012 Omnibus Incentive Plan
Restricted Stock Units
The RSUs granted in 2018 to NEOs vest in three years. All RSUs are payable in common stock.
Performance Share Awards
The performance share awards granted to NEOs in 2018 are based upon the attainment of certain Free Cash Flow performance targets and relative TSR over a three-year performance period beginning January 1, 2018 through December 31, 2020. The performance share awards represented 66% of the total LTI award opportunity for executive officers. One-half of the 2018 performance share payouts, or 33% of the total LTI award, will be measured by Free Cash Flow performance and one-half, or 33% of the total LTI award, will be measured by relative TSR performance over a three-year period. TSR performance share payouts will be capped if the Company's TSR is negative for the three-year period. All performance shares are payable in common stock.
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| Executive Compensation Tables |
The following table illustrates the threshold, target and maximum performance levels for determining 2018 award payouts for each performance measure.
|
| | | | | | | | | |
| | Free Cash Flow | | Relative TSR |
| Performance Level | 3-Year Cumulative Free Cash Flow | | Percent of Target Award Opportunity Earned |
| | Company TSR Percentile Rank | | Percent of Target Award Opportunity Earned |
|
| Threshold | $990 million | | 50 | % | | 35th | | 50 | % |
| Target | $1,325 million | | 100 | % | | 50th | | 100 | % |
| Maximum | $1,525 million | | 200 | % | | 75th | | 200 | % |
|
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| Executive Compensation Tables |
Outstanding Equity Awards at December 31, 2018
|
| | | | | | | |
| | Stock Awards |
| Name | Number of Shares or Units of Stock That Have Not Vested (#) |
| Market Value of Shares or Units of Stock That Have Not Vested(1) ($) |
| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market of Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(7) |
|
| David C. Dauch | 101,361(2) |
| 1,125,107 |
| 43,082(5) | 478,210 |
|
| | 88,774(3) |
| 985,391 |
| 172,326(5) | 1,912,819 |
|
| | 136,904(4) |
| 1,519,635 |
| 66,440(6) | 737,484 |
|
| | — |
| — |
| 132,879(6) | 1,474,957 |
|
| Christopher J. May | 8,814(2) |
| 97,835 |
| 3,430(5) | 38,073 |
|
| | 7,068(3) |
| 78,455 |
| 13,720(5) | 152,292 |
|
| | 32,739(4) |
| 363,403 |
| 15,888(6) | 176,357 |
|
| | — |
| — |
| 31,775(6) | 352,703 |
|
| Michael K. Simonte | 32,436(2) |
| 360,040 |
| 12,622(5) | 140,104 |
|
| | 26,009(3) |
| 288,700 |
| 50,488(5) | 560,417 |
|
| | 53,572(4) |
| 594,649 |
| 25,998(6) | 288,578 |
|
| | — |
| — |
| 51,996(6) | 577,156 |
|
| Alberto L. Satine | 16,857(2) |
| 187,113 |
| 6,560(5) | 72,816 |
|
| | 13,516(3) |
| 150,028 |
| 26,240(5) | 291,264 |
|
| | 29,047(4) |
| 322,422 |
| 14,097(6) | 156,477 |
|
| | — |
| — |
| 28,194(6) | 312,953 |
|
| Norman Willemse | 14,874(2) |
| 165,101 |
| 5,788(5) | 64,247 |
|
| | 11,927(3) |
| 132,390 |
| 23,152(5) | 256,987 |
|
| | 25,239(4) |
| 280,153 |
| 12,248(6) | 135,953 |
|
| | — |
| — |
| 24,496(6) | 271,906 |
|
| |
| (1) | Reflects value of outstanding RSUs at $11.10, the closing price of AAM common stock on December 31, 2018. |
| |
| (2) | Reflects RSUs granted on March 4, 2016 that vested on March 4, 2019. |
| |
| (3) | Reflects RSUs granted on February 28, 2017. RSUs vest three years from the date of grant. |
| |
| (4) | Reflects RSUs granted on March 2, 2018. RSUs vest three years from the date of grant. |
| |
| (5) | Reflects performance shares granted on February 28, 2017 for the performance period January 1, 2017 through December 31, 2019 that would be paid out at the end of the performance period based on actual performance through December 31, 2018. The relative TSR award amounts reflect a threshold payout and the EBITDA margin award amounts reflect a maximum payout. Payouts will be determined at the end of the performance period based on actual performance. |
| |
| (6) | Reflects performance shares granted on March 2, 2018 for the performance period January 1, 2018 through December 31, 2020 that would be paid out at the end of the performance period based on actual performance through December 31, 2018. The relative TSR award amounts reflect a threshold payout and the free cash flow awards reflect a target payout. Payouts will be determined at the end of the performance period based on actual performance. |
| |
| (7) | Reflects the value of 2017 and 2018 performance shares based on performance through December 31, 2018 as described above in footnotes (5) and (6) multiplied by $11.10, the closing price of AAM common stock on December 31, 2018. |
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Options Exercised and Stock Vested
|
| | | | | | | | |
| Option Awards | Stock Awards |
| Name | Number of Shares Acquired on Exercise (1) (#) |
| Value Realized on Exercise (1) ($) |
| Number of Shares Acquired on Vesting(2) (#) |
| Value Realized on Vesting(3) ($) |
|
| David C. Dauch | — |
| — |
| 254,830 |
| 3,013,276 |
|
| Christopher J. May | — |
| — |
| 22,985 |
| 273,816 |
|
| Michael K. Simonte | — |
| — |
| 78,501 |
| 920,769 |
|
| Alberto L. Satine | — |
| — |
| 40,212 |
| 470,171 |
|
| Norman Willemse | 9,700 |
| 54,087 |
| 34,395 |
| 399,341 |
|
| |
| (1) | Reflects the number of shares acquired upon exercise of stock options. Value realized upon exercise is based on the difference between the market price of AAM common stock acquired upon exercise and the exercise price for such stock options on the exercise date. |
| |
| (2) | Reflects the number of shares vested in March 2018 under RSU awards granted in March 2015. Also includes the number of performance shares earned for the performance period ending December 31, 2018. |
| |
| (3) | Reflects the number of shares underlying vested RSUs multiplied by the closing market price of AAM common stock on the vesting date. Also includes the number of performance shares earned for the period ending December 31, 2018 multiplied by the closing market price of AAM common stock at December 31, 2018. See Compensation Discussion and Analysis for further detail of the payouts earned. |
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| Executive Compensation Tables |
Pension Benefits
The NEOs are eligible to participate in pension plans that provide benefits based on years of service and pay. Pension benefits are provided under a qualified defined benefit pension plan, AAM's Salaried Retirement Program (SRP) and for Mr. Willemse, the Albion Pension Plan. Supplemental pension benefits are provided under the nonqualified Supplemental Executive Retirement Program (SERP).
In 2018, the SERP was amended to freeze further benefit accruals as of April 30, 2018. The amendment also froze the plan to new participants as of April 1, 2018. Frozen benefits will pay out in accordance with the SERP's terms.
The following table shows the value of the benefits accumulated by the NEOs and their years of credited service under the SRP, the Albion Pension Plan and the SERP, each as of December 31, 2018. |
| | | | | |
| Name | Plan Name | Number of Years of Credited Service(1) (#) |
| Present Value of Accumulated Benefit(2) ($) |
|
| David C. Dauch | AAM Salaried Retirement Program | 11.5000 |
| 378,924 |
|
| AAM Supplemental Executive Retirement Program | 22.8333 |
| 8,196,092 |
|
| Christopher J. May | AAM Salaried Retirement Program | 12.5000 |
| 163,827 |
|
| AAM Supplemental Executive Retirement Program | 23.8333 |
| 1,292,436 |
|
| Michael K. Simonte | AAM Salaried Retirement Program | 8.0833 |
| 252,912 |
|
| AAM Supplemental Executive Retirement Program | 19.4166 |
| 3,097,335 |
|
Alberto L. Satine(3) | AAM Salaried Retirement Program | 10.5833 |
| 680,327 |
|
| AAM Supplemental Executive Retirement Program | 16.9166 |
| 1,475,886 |
|
Norman Willemse(4) | Albion Pension Plan | 6.3333 |
| 319,629 |
|
| AAM Supplemental Executive Retirement Program | 17.0000 |
| 1,417,745 |
|
| |
| (1) | Benefits under the SRP were frozen effective December 31, 2006 for Mr. Dauch, Mr. May and Mr. Simonte. Benefits under the SRP were frozen effective December 31, 2011 for Mr. Satine. Benefits for Mr. Willemse under the Albion Pension Plan reflect his years of service with our UK subsidiary, Albion Automotive Limited. Credited service under the SERP reflects service through the freeze date of April 30, 2018. As a result, credited service under the SRP, the Albion Pension Plan and the SERP is less than actual service with the Company. |
| |
| (2) | The values shown are based on benefits deferred to the earliest age at which unreduced benefits are payable. The assumptions used to calculate the actuarial present value of accumulated benefits are the same assumptions used in our audited consolidated financial statements for the fiscal year ended December 31, 2018 and assume continued employment until unreduced retirement age is attained. For material assumptions used, see Note 9 to the audited consolidated financial statements in our annual report on Form 10-K for the fiscal year ended December 31, 2018. |
| |
| (3) | Mr. Satine was eligible to retire on December 31, 2018 under both the SRP and the SERP. He qualifies for an unreduced benefit under the SRP and the lump sum benefit under the SERP. |
| |
| (4) | Mr. Willemse is not a participant in the SRP. Mr. Willemse was eligible to retire on December 31, 2018 under both the Albion Pension Plan and the SERP. He qualifies for the lump sum benefit under the SERP. |
Salaried Retirement Program (SRP). The annual retirement benefit payable to each executive, commencing on retirement at or after age 65, equals the sum of the executive’s contributions plus an additional benefit based on the executive’s average monthly salary (determined as the average of the executive’s base salary in the highest 60 months during his final 10 years of service) and years of credited service. Benefits under the SRP may be paid as a single life annuity or, upon election, in the form of a joint and survivor annuity with a reduction in the amount of the annual benefit. The SRP is a qualified plan subject to Internal Revenue Code (IRC) limitations on benefits and is subject to the Employee Retirement Income Security Act of 1974.
Effective December 31, 2006, the SRP was amended to freeze benefits at current levels for associates who were not eligible to retire by December 1, 2011. Associates who were eligible for early or normal retirement on or before December 31, 2011 continued to accrue benefits through December 31, 2011.
Albion Pension Plan. Our Albion Automotive Limited subsidiary provides pension benefits under the Albion Pension Plan for its salaried associates. Mr. Willemse is a participant in this plan based on his former employment with this subsidiary. The annual retirement benefit payable, commencing on retirement at or after age 65, is based on the participant's average salary (as defined in the plan during the final 10 years of service with Albion Automotive
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| Executive Compensation Tables |
Limited), years of pensionable service and the percentage of participant contributions to the plan. The participant may elect benefits to be in the form of an annuity or to receive a portion of the benefit payable in a lump sum.
Supplemental Executive Retirement Program (SERP). Executive officers who were hired before April 1, 2018 are eligible to receive a benefit under the SERP, payable six months after retirement in a lump sum. The now frozen SERP benefit amount was determined as of April 30, 3018 as 12.5% of the executive’s final average compensation (determined as the executive’s average annual base salary and cash incentive for the highest five consecutive years), multiplied by the executive’s years of credited service, less the sum of the actuarial equivalent value of the executive’s benefits payable under the SRP, the Albion Pension Plan and the balance of the executive’s employer retirement contribution account under AAM’s 401(k) plan.
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| Executive Compensation Tables |
Nonqualified Deferred Compensation
The following table summarizes deferred compensation of NEOs under the Executive Deferred Compensation Plan (EDC) for the 2018 fiscal year.
|
| | | | | | | | | | |
| Name | Executive Contributions in Last FY ($) |
| Registrant contributions in Last FY ($) |
| Aggregate Earnings In Last FY(1) ($) |
| Aggregate Withdrawals Distributions ($) |
| Aggregate Balance at Last FYE(2) ($) |
|
| David C. Dauch | — |
| — |
| (28,523 | ) | — |
| 453,948 |
|
| Christopher J. May | — |
| — |
| — |
| — |
| — |
|
| Michael K. Simonte | — |
| — |
| — |
| — |
| — |
|
| Alberto L. Satine | — |
| — |
| — |
| — |
| — |
|
| Norman Willemse | — |
| — |
| (8,891 | ) | — |
| 97,086 |
|
| |
| (1) | Reflects hypothetical accrued earnings or losses during 2018 on notional investments designed to track the performance of funds similar to those available under the Company’s 401(k) plan. None of the earnings shown in this column are reported as compensation in the Summary Compensation Table. |
| |
| (2) | Of the aggregate balance, the amounts reflect compensation previously reported in the Summary Compensation Table for the NEOs. |
Executive Deferred Compensation Plan
The EDC is a nonqualified, tax-deferred savings plan for certain executives, including the NEOs. In April 2018, the EDC was amended to freeze further deferrals as of December 31, 2018. The amendment also froze the plan to new participants as of April 1, 2018.
Participants may elect to defer payment of 6% to 75% of their base salary and/or their annual incentive award during a plan year. Base salary deferred into the plan receives a 3% Company match. Matching contributions are vested after five years of credited service. The amounts deferred are unfunded and unsecured obligations of AAM.
Amounts deferred or credited into this plan are represented in the executive’s notional account and are “invested” among funds also available under AAM’s 401(k) plan. Although the executive has no actual or constructive ownership of shares in the investment funds, the return on the executive’s account is determined as if the amounts were notionally invested in these funds.
Distributions can be received (1) upon retirement in a lump sum or in annual payments over a period of five or ten years, (2) in a lump sum upon death, disability, termination of employment or change in control or (3) if elected by the participant, during employment at a specified date after a minimum deferral period of three years. Distributions during employment consist of participant deferrals and related earnings or losses (not Company contributions and related earnings or losses).
Executive Retirement Savings Plan
In connection with freezing the SERP and the EDC, we adopted the AAM Executive Retirement Savings Plan (ERSP) effective as of January 1, 2019. The ERSP is a nonqualified deferred compensation program contributed to by the Company to provide certain highly-compensated associates, including the NEOs, the opportunity to receive supplemental deferred compensation upon retirement and certain other qualifying events. The ERSP does not provide for participant contributions.
ERSP eligible executives will receive an annual contribution to their account equal to 10% of combined base salary and bonus paid during a calendar year less their maximum eligible 401(k) Company contributions. In addition, certain participants, including the NEOs, are eligible to receive an additional Company contribution equal to 12.5% of base salary and bonus paid for a period of 5 calendar years. The Company also may make discretionary contributions.
Amounts deferred or credited into this plan are represented in the executive’s notional account and are “invested” among funds also available under AAM’s 401(k) plan. Although the executive has no actual or constructive ownership of shares in the investment funds, the return on the executive’s account is determined as if the amounts were notionally invested in these funds.
ERSP contributions and account balances vest at the earliest of the following:
| |
| – | Age 55 with 10 years of service; |
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| Executive Compensation Tables |
| |
| – | Age 60 with 5 years of service; or |
Distributions can be received in a lump sum or in annual installments of two to ten years, or in a lump sum upon death, disability, termination of employment or change in control.
No contributions were made to this plan in 2018.
Investment Options
In April 2018, the investment fund options under AAM's 401(k) plan were changed. The new funds selected were replaced with similar fund options. The table below shows the investment fund options available under the EDC and the ERSP as of December 31, 2018 and the related annual rates of return for the year ended December 31, 2018.
|
| | | | | | |
| Name of Fund | Rate of Return |
| | Name of Fund | Rate of Return |
|
| PIMCO Total Return Fund | (0.26 | )% | | Hartford International Opportunities Fund | (18.74 | )% |
| PIMCO High Yield Fund | (2.49 | )% | | Victory Sycamore Established Value Fund | (9.95 | )% |
| Dreyfus International Bond Fund | (5.79 | )% | | FIAM Blend Target Date 2005 Fund | (2.22 | )% |
| Vanguard Total Bond Market Index Fund | (0.01 | )% | | FIAM Blend Target Date 2010 Fund | (3.16 | )% |
| Fidelity 500 Index Fund | (4.40 | )% | | FIAM Blend Target Date 2015 Fund | (4.02 | )% |
| MFS Value Fund | (9.87 | )% | | FIAM Blend Target Date 2020 Fund | (4.76 | )% |
| Vanguard FTSE Social Index Fund | (3.38 | )% | | FIAM Blend Target Date 2025 Fund | (5.45 | )% |
| Fidelity Growth Company Fund | (4.46 | )% | | FIAM Blend Target Date 2030 Fund | (6.54 | )% |
| Fidelity Low-Priced Stock Fund | (10.68 | )% | | FIAM Blend Target Date 2035 Fund | (7.83 | )% |
| Eaton Vance Atlanta Capital SMID Fund | (5.35 | )% | | FIAM Blend Target Date 2040 Fund | (8.44 | )% |
| Vanguard External Market Index Fund | (9.35 | )% | | FIAM Blend Target Date 2045 Fund | (8.46 | )% |
| American Beacon Small Cap Value Fund | (15.63 | )% | | FIAM Blend Target Date 2050 Fund | (8.41 | )% |
| Janus Henderson Triton Fund | (5.04 | )% | | FIAM Blend Target Date 2055 Fund | (8.39 | )% |
| Fidelity Diversified International Fund | (15.20 | )% | | FIAM Blend Target Date 2060 Fund | (8.45 | )% |
| Fidelity International Index Fund | (13.52 | )% | | FIAM Blend Target Date Income Fund | (1.45 | )% |
| Harding Loevner Institutional Emerging Market Fund | (18.63 | )% | | Mass Mutual Diversified SAGIC Fund | 2.72 | % |
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| Executive Compensation Tables |
Potential Payments Upon Termination or Change in Control
The following tables show the estimated potential payments and benefits that each of the NEOs would receive upon termination of employment under various circumstances that would trigger payments under applicable employment agreements and the Company’s plans and programs, assuming the termination event occurred on December 31, 2018. Although the calculations are intended to provide reasonable estimates of the potential payments, they are based on numerous assumptions and may not represent the actual amounts these NEOs would receive upon each termination event.
Employment Agreements
Under our employment agreements with Mr. Dauch and Mr. Simonte, the Company may terminate their employment with or without cause. Cause means:
a material breach of his obligations under the agreement;
the willful and continued failure or refusal to satisfactorily perform his duties;
a conviction of or pleading guilty (or no contest) to a felony or to another crime involving dishonesty or moral turpitude or which reflects negatively upon the Company or impairs its operations;
engaging in any misconduct, negligence, act of dishonesty (including any violation of federal securities laws) or violence that is materially injurious to the Company;
a material breach of a restrictive covenant (i.e., non-competition, non-solicitation) or Company policy;
refusal to follow the directions of the Board; or
any other willful misconduct that is materially injurious to AAM's financial condition or business reputation.
| |
| – | a material breach of his obligations under the agreement; |
| |
| – | the willful and continued failure or refusal to satisfactorily perform his duties; |
| |
| – | a conviction of or pleading guilty (or no contest) to a felony or to another crime involving dishonesty or moral turpitude or which reflects negatively upon the Company or impairs its operations; |
| |
| – | engaging in any misconduct, negligence, act of dishonesty (including any violation of federal securities laws) or violence that is materially injurious to the Company; |
| |
| – | a material breach of a restrictive covenant (i.e., non-competition, non-solicitation) or Company policy; |
| |
| – | refusal to follow the directions of the Board; or |
| |
| – | any other willful misconduct that is materially injurious to AAM's financial condition or business reputation. |
In addition, Mr. Dauch and Mr. Simonte may resign for good reason, which means:
a material decrease in compensation or a failure by the Company to pay material compensation;
a material diminution of responsibilities, positions or titles (other than solely as a result of the Company ceasing to be a publicly-traded company);
relocation more than 50 miles outside the Detroit-metropolitan area; or
a material breach by the Company.
| |
| – | a material decrease in compensation or a failure by the Company to pay material compensation; |
| |
| – | a material diminution of responsibilities, positions or titles (other than solely as a result of the Company ceasing to be a publicly-traded company); |
| |
| – | relocation more than 50 miles outside the Detroit-metropolitan area; or |
| |
| – | a material breach by the Company of its obligations under the agreement. |
Upon termination for cause or resignation without good reason, Mr. Dauch and Mr. Simonte are entitled to receive only accrued and unpaid compensation. Participation in the Company’s benefit plans would cease upon termination.
If employment is terminated without cause or upon resignation for good reason on or within two years following a CIC, Mr. Dauch and Mr. Simonte are entitled to a severance payment of a multiple of annual base salary and annual bonus, plus a target annual bonus prorated through the termination date. The annual bonus payment is determined based on the higher of his target annual bonus for either the year of the CIC or the year of termination. The severance multiple for Mr. Dauch is three times and Mr. Simonte's multiple is two times. In addition, each would receive medical benefit continuation after termination of employment following a CIC; Mr. Dauch for three years and Mr. Simonte for two years. Each would also receive outplacement services; Mr. Dauch $50,000 and Mr. Simonte $30,000.
If employment is terminated without cause, or upon resignation for good reason not in connection with a CIC, Mr. Dauch and Mr. Simonte are entitled to a severance payment of two times annual base salary and annual target bonus, plus a target annual bonus prorated through the termination date. Payments of base salary are paid in accordance with ordinary payroll practices commencing on the 60th day following separation of service or in a lump sum to the extent allowable under Section 409A. Target bonus amounts are payable in a lump sum on the 60th day following the termination date. In addition, each would receive medical benefit continuation for two years. Each are also entitled to receive accrued and unpaid compensation, and continued payment of base salary for two years following termination. Each would also receiveas well as outplacement services; Mr. Dauch $50,000 and Mr. Simonte $30,000.
Certain severance payments are subject to recoupment or clawback. Salary and benefit continuation is also subject to compliance with the confidentiality, non-competition, non-solicitation and intellectual property assignment provisions of each employment agreement as well as the execution and non-revocation of a general waiver and release of claims.
If employment terminates due to disability or death, Mr. Dauch and Mr. Simonte will be entitled to accrued benefits under applicable benefit plans and programs.
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| Executive Compensation Tables |
AAM Executive Officer Change in ControlSeverance Plan
Under the AAM Executive Officer Change in ControlSeverance Plan, adopted in February 2015, upon termination of employment by the Company without cause or resignation by an executive officer (other than Mr. Dauch and Mr. Simonte)participant for good reason on or within two years followingnot in connection with a CIC, each eligible executive officerparticipant will be entitled to certain severance payments and benefits, in addition to other accrued compensation and benefits:benefits, including:
a cash amount equal to annual base salary multiplied by two;
a cash amount equal to target annual bonus multiplied by two, with target annual bonus determined as the greater of the target amount in the year of the CIC or the year of termination of employment;
reimbursement of outplacement service costs of up to $30,000 incurred within 24 months following termination of employment; and
continued participation in AAM's medical benefit plans for two years following termination of employment, or, in certain cases, a cash amount equal to the value of the benefit continuation.
| |
| – | a cash amount equal to annual base salary and target annual bonus multiplied by up to 1.5 based on position; target annual bonus is determined as the target amount in the year of termination; |
| |
| – | a prorated annual bonus equal to the annual bonus for the performance year during which the qualifying termination occurs based on active employment during the performance year; |
| |
| – | reimbursement of outplacement service costs of up to $20,000; and |
| |
| – | continued participation in AAM's medical benefit plans for up to 1.5 years following termination of employment based on position, or, in certain cases, a cash amount equal to the value of the benefit continuation. |
For purposes of the CICSeverance Plan, cause means: (1) the participant's willful and continued failure or refusal to satisfactorily perform his/her duties; (2) a conviction of or pleading guilty (or no contest) to a felony or to another crime involving dishonesty or moral turpitude or which reflects negatively upon the Company or impairs its operations; (3) engaging in any willful misconduct, gross negligence, act of dishonesty (including any violation of federal securities laws) or violence that is injurious to the Company; (4) a material breach of any restrictive covenant or any material written policy of the Company; (5) a material failure to comply with any material applicable laws and regulations or professional standards relating to the business of the Company; or (6) any other misconduct that is injurious to the financial condition or business reputation of the Company.
The Severance Plan defines good reason to include any of the following acts or omissions: (1) a material reduction in a participant's annual base salary or bonus opportunity in effect immediately prior to the reduction; or (2) a relocation of the office at which the participant is to perform the majority of his or her duties to a location more than 50 miles from such location at which the participant performed such duties prior to the relocation.
These benefits are subject to execution and non-revocation of a general waiver and release of claims against the Company and continued compliance with the restrictive covenants of the Severance Plan. The benefits are also subject to recoupment or clawback.
AAM Change in Control Plan
Under the AAM Change in Control Plan, upon termination of employment by the Company without cause or resignation by an executive officer participant for good reason on or within two years following a CIC, each participant will be entitled to certain severance payments and benefits, in addition to other accrued compensation and benefits, including:
| |
| – | a cash amount equal to annual base salary multiplied by two; |
| |
| – | a cash amount equal to target annual bonus multiplied by two, with target annual bonus determined as the greater of the target amount in the year of the CIC or the year of termination of employment; |
| |
| – | a prorated target annual bonus with the target annual bonus determined as the greater of the target amount in the year of the CIC or the year of termination of employment; |
| |
| – | reimbursement of outplacement service costs of up to $30,000 incurred within 24 months following termination of employment; and |
| |
| – | continued participation in AAM's medical benefit plans for two years following termination of employment, or, in certain cases, a cash amount equal to the value of the benefit continuation. |
For purposes of the CIC Plan, cause means: (1) the participant's willful and continued failure or refusal to satisfactorily perform his/her duties; (2) a conviction of or pleading guilty (or no contest) to a felony or to another crime involving dishonesty or moral turpitude or which reflects negatively upon the Company or impairs its operations; (3) engaging in any willful misconduct, gross negligence, act of dishonesty (including any violation of federal securities laws) or violence that is injurious to the Company; (4) a material breach of any employment agreement restrictive covenant or any material written policy of the Company; (5) a material failure to comply with any material applicable laws and regulations or professional standards relating to the business of the Company; or (6) any other misconduct that is injurious to the financial condition or business reputation of the Company.
The CIC Plan defines good reason to include any of the following acts or omissions: (1) a material reduction in a participant's position, authority, duties or responsibilities following the CIC; (2) a material reduction in a participant's annual base salary or bonus opportunity in effect prior to the CIC; or (3) a relocation of the office at which the
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| Executive Compensation Tables |
participant is to perform the majority of his or her duties following a CIC to a location more than 50 miles from such location prior to the CIC.
This salary and benefit continuation isThese benefits are subject to the executive officer's compliance with the confidentiality, non-competition, non-solicitation and intellectual property assignment provisions of the CIC Plan as well as the execution and non-revocation of a general waiver and release of claims. Certain severance paymentsclaims against the Company and continued compliance with the restrictive covenants of the CIC Plan. The benefits are also subject to recoupment or clawback.
No Tax Gross Ups
The Company does not provide tax gross ups to executive officers upon a CIC. If any of the payments or benefits under Mr. Dauch's or Mr. Simonte's employment agreement or the CIC Plan are deemed to be parachute payments under Section 280G of the Code and would be subject to the excise tax imposed under Section 4999 of the Code, the payments or benefits will be reduced by the amount required to avoid the excise tax if the reduction would give a better after-tax result than if the full payments and benefits were received.
Non-Competition Agreements
Pursuant to their non-competition agreements with the Company, Mr. May, Mr. Satine and Mr. Willemse are prohibited, while employed by AAM and for one year following termination of employment (prior to a CIC), from:
directly or indirectly engaging in any business that competes with AAM;
soliciting or inducing our employees to leave AAM, or offering employment to our employees or otherwise interfering with our relationship with our employees, agents or consultants; and
using, exploiting or disclosing our confidential information to any third party without our prior written consent.
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| – | directly or indirectly engaging in any business that competes with AAM; |
| |
| – | soliciting or inducing our employees to leave AAM or otherwise interfering with our relationship with our employees, agents or consultants; and |
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| – | using, exploiting or disclosing our confidential information to any third party without our prior written consent. |
Potential Payments Upon Termination or Change in Control
The tables below reflect potential payments to each NEO upon resignation for good reason, termination without cause, disability, retirement and a CIC as of December 31, 2016.2018. Upon termination for cause or resignation without good reason, each NEO would receive only accrued and unpaid compensation and benefits. The assumptions used to determine retirement benefits for eligible NEOs are the same as those used in our audited consolidated financial statements for the fiscal year ended December 31, 2016.2018. See Note 69 to the audited consolidated financial statements in our 20162018 annual report on Form 10-K. Mr. Dauch, Mr. May and Mr. Simonte were not eligible to retire as of December 31, 2016.2018. The footnotes following the tables provide additional detail regarding the potential payments and benefits shown for each termination scenario. |
| | | | | | | | | | |
| David C. Dauch | For Good
Reason
Resignation
($) |
| Without
Cause
Termination
($) |
| Disability
Retirement(1) ($) |
| Retirement ($) |
|
Termination Upon a Change in
Control(2) ($) |
|
| Compensation: | | | | | |
| Severance | 2,300,000(3) |
| 2,300,000(3) |
| — |
| — |
| 3,450,000(4) |
|
| Annual Incentive | 4,455,700(3) |
| 4,455,700(3) |
| 1,350,700(5) |
| — |
| 6,008,200(4) |
|
| Long Term Incentives: | | | | | |
RSUs(6) | — |
| — |
| 3,630,133 |
| — |
| 3,630,133 |
|
2016 Performance Share Awards(7) | — |
| 2,184,036 |
| 2,184,036 |
| — |
| 2,184,036 |
|
2017 Performance Share Awards(8) | — |
| 1,275,212 |
| 1,275,212 |
| — |
| 1,912,819 |
|
2018 Performance Share Awards(9) | — |
| 983,305 |
| 983,305 |
| — |
| 2,949,914 |
|
| | | | | | |
| Other Benefits: | | | | | |
| Retirement Plans | — |
| — |
| — |
| — |
| — |
|
| SERP | — |
| — |
| — |
| — |
| — |
|
| Welfare Benefit | — |
| — |
| — |
| — |
| — |
|
Deferred Compensation(10) | 453,948 |
| 453,948 |
| 453,948 |
| — |
| 453,948 |
|
Health Care(11) | 38,372 |
| 38,372 |
| 47,965 |
| — |
| 58,961 |
|
Disability(12) | — |
| — |
| 6,387,336 |
| — |
| — |
|
Life Insurance(13) | — |
| — |
| 16,373 |
| — |
| — |
|
Outplacement Services(14) | 50,000 |
| 50,000 |
| — |
| — |
| 50,000 |
|
| Total | 7,298,020 |
| 11,740,573 |
| 16,329,008 |
| — |
| 20,698,011 |
|
|
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| Executive Compensation Tables |
| | | David C. Dauch | For Good
Reason
Resignation
($) | Without
Cause
Termination
($) | Disability
Retirement(1) ($) | Retirement ($) |
Termination Upon a Change in
Control(2) ($) | |
| Christopher J. May | | For Good
Reason
Resignation
($) |
| Without
Cause
Termination
($) |
| Disability
Retirement(1) ($) |
| Retirement ($) |
|
Termination Upon a Change in
Control(2) ($) |
|
| Compensation: | | |
| Severance | 2,300,000(3) |
| 2,300,000(3) |
| — |
| — |
| 3,450,000(4) |
| 825,000(15) |
| 825,000(15) |
| — |
| — |
| 1,100,000(16) |
|
| Annual Incentive | 2,875,000(3) |
| 2,875,000(3) |
| 2,875,000(5) |
| — |
| 7,187,500(4) |
| 1,042,800(15) |
| 1,042,800(15) |
| 382,800(5) |
| — |
| 1,262,800(16) |
|
| Long Term Incentives: | | |
RSUs(6) | — |
| — |
| 4,359,445 |
| — |
| 4,359,445 |
| — |
| — |
| 539,693 |
| — |
| 539,693 |
|
2014 Performance Share Awards(7) | — |
| 2,377,413 |
| 2,377,413 |
| — |
| 2,377,413 |
| |
2015 Performance Share Awards(8) | — |
| 1,450,382 |
| 1,450,382 |
| — |
| 2,175,573 |
| |
2016 Performance Share Awards(9) | — |
| 1,265,823 |
| 1,265,823 |
| — |
| 3,797,468 |
| |
2016 Performance Share Awards(7) | | — |
| 189,921 |
| 189,921 |
| — |
| 189,921 |
|
2017 Performance Share Awards(8) | | — |
| 101,528 |
| 101,528 |
| — |
| 152,292 |
|
2018 Performance Share Awards(9) | | — |
| 235,135 |
| 235,135 |
| — |
| 705,405 |
|
| | | |
| Other Benefits: | | |
| Retirement Plans | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| SERP | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Welfare Benefit | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Deferred Compensation(10) | 400,741 |
| 400,741 |
| 400,741 |
| — |
| 400,741 |
| |
Health care(11) | 37,861 |
| 37,861 |
| 48,904 |
| — |
| 57,985 |
| |
| Deferred Compensation | | — |
| — |
| — |
| — |
| — |
|
Health Care(17) | | — |
| — |
| 40,424 |
| — |
| 32,339 |
|
Disability(12) | — |
| — |
| 7,305,528 |
| — |
| — |
| — |
| — |
| 4,072,804 |
| — |
| — |
|
Life Insurance(13) | — |
| — |
| 12,508 |
| — |
| — |
| — |
| — |
| 2,878 |
| — |
| — |
|
Outplacement Services(14) | 50,000 |
| 50,000 |
| — |
| — |
| 50,000 |
| |
Outplacement Services(18) | | 20,000 |
| 20,000 |
| — |
| — |
| 30,000 |
|
| Total | 5,663,602 |
| 10,757,220 |
| 20,095,744 |
| — |
| 23,856,125 |
| 1,887,800 |
| 2,414,384 |
| 5,565,183 |
| — |
| 4,012,450 |
|
|
| | | | | | | | | | |
| Michael K. Simonte | For Good
Reason
Resignation
($) |
| Without
Cause
Termination
($) |
| Disability
Retirement(1) ($) |
| Retirement ($) |
|
Termination Upon a Change in
Control(2) ($) |
|
| Compensation: | | | | | |
| Severance | 1,500,000(3) |
| 1,500,000(3) |
| — |
| — |
| 1,500,000(4) |
|
| Annual Incentive | 2,152,500(3) |
| 2,152,500(3) |
| 652,500(5) |
| — |
| 2,152,500(4) |
|
| Long Term Incentives: | | | | | |
RSUs(6) | — |
| — |
| 1,243,389 |
| — |
| 1,243,389 |
|
2016 Performance Share Awards(7) | — |
| 698,900 |
| 698,900 |
| — |
| 698,900 |
|
2017 Performance Share Awards(8) | — |
| 373,611 |
| 373,611 |
| — |
| 560,417 |
|
2018 Performance Share Awards(9) | — |
| 384,770 |
| 384,770 |
| — |
| 1,154,311 |
|
| | | | | | |
| Other Benefits: | | | | | |
| Retirement Plans | — |
| — |
| — |
| — |
| — |
|
| SERP | — |
| — |
| — |
| — |
| — |
|
| Welfare Benefit | — |
| — |
| — |
| — |
| — |
|
| Deferred Compensation | — |
| — |
| — |
| — |
| — |
|
Health Care(11) | 38,371 |
| 38,371 |
| 47,964 |
| — |
| 38,371 |
|
Disability(12) | — |
| — |
| 4,067,667 |
| — |
| — |
|
Life Insurance(13) | — |
| — |
| 11,204 |
| — |
| — |
|
Outplacement Services(14) | 30,000 |
| 30,000 |
| — |
| — |
| 30,000 |
|
| Total | 3,720,871 |
| 5,178,152 |
| 7,480,005 |
| — |
| 7,377,888 |
|
|
| |
| Executive Compensation Tables |
|
| | | | | | | | | | |
| Christopher J. May | For Good
Reason
Resignation
($) | Without
Cause
Termination
($) | Disability
Retirement(1) ($) | Retirement ($) |
Termination Upon a Change in
Control(2) ($) |
| Compensation: | | | | | |
| Severance | — |
| — |
| — |
| — |
| 800,000(15) |
|
| Annual Incentive | — |
| — |
| 480,000(5) |
| — |
| 960,000(15) |
|
| Long Term Incentives: | | | | | |
RSUs(6) | — |
| — |
| 424,581 |
| — |
| 424,581 |
|
| 2014 Performance Share Awards | — |
| — |
| — |
| — |
| — |
|
| 2015 Performance Share Awards | — |
| — |
| — |
| — |
| — |
|
2016 Performance Share Awards(9) | — |
| 110,074 |
| 110,074 |
| — |
| 330,223 |
|
| | | | | | |
| Other Benefits: | | | | | |
| Retirement Plans | — |
| — |
| — |
| — |
| — |
|
| SERP | — |
| — |
| — |
| — |
| — |
|
| Welfare Benefit | — |
| — |
| — |
| — |
| — |
|
| Deferred Compensation | — |
| — |
| — |
| — |
| — |
|
Health care(16) | — |
| — |
| 42,971 |
| — |
| 33,268 |
|
Disability(12) | — |
| — |
| 3,549,951 |
| — |
| — |
|
Life Insurance(13) | — |
| — |
| 1,691 |
| — |
| — |
|
Outplacement Services(17) | — |
| — |
| — |
| — |
| 30,000 |
|
| Total | — |
| 110,074 |
| 4,609,268 |
| — |
| 2,578,072 |
|
|
| | | | | | | | | | |
| Michael K. Simonte | For Good
Reason
Resignation
($) | Without
Cause
Termination
($) | Disability
Retirement(1) ($) | Retirement ($) |
Termination Upon a Change in
Control(2) ($) |
| Compensation: | | | | | |
| Severance | 1,280,000(3) |
| 1,280,000(3) |
| — |
| — |
| 1,280,000(4) |
|
| Annual Incentive | 1,280,000(3) |
| 1,280,000(3) |
| 1,280,000(5) |
| — |
| 2,560,000(4) |
|
| Long Term Incentives: | | | | | |
RSUs(6) | — |
| — |
| 1,299,025 |
| — |
| 1,299,025 |
|
2014 Performance Share Awards(7) | — |
| 691,731 |
| 691,731 |
| — |
| 691,731 |
|
2015 Performance Share Awards(8) | — |
| 388,059 |
| 388,059 |
| — |
| 582,088 |
|
2016 Performance Share Awards(9) | — |
| 405,068 |
| 405,068 |
| — |
| 1,215,205 |
|
| | | | | | |
| Other Benefits: | | | | | |
| Retirement Plans | — |
| — |
| — |
| — |
| — |
|
| SERP | — |
| — |
| — |
| — |
| — |
|
| Welfare Benefit | — |
| — |
| — |
| — |
| — |
|
| Deferred Compensation | — |
| — |
| — |
| — |
| — |
|
Health care(11) | 37,860 |
| 37,860 |
| 48,903 |
| — |
| 37,860 |
|
Disability(12) | — |
| — |
| 4,359,138 |
| — |
| — |
|
Life Insurance(13) | — |
| — |
| 7,311 |
| — |
| — |
|
Outplacement Services(14) | 30,000 |
| 30,000 |
| — |
| — |
| 30,000 |
|
| Total | 2,627,860 |
| 4,112,718 |
| 8,479,235 |
| — |
| 7,695,909 |
|
|
| | | | | | | | | | |
| Alberto L. Satine | For Good
Reason
Resignation
($) |
| Without
Cause
Termination
($) |
| Disability
Retirement ($) |
| Retirement ($) |
|
Termination Upon a Change in
Control(2) ($) |
|
| Compensation: | | | | | |
| Severance | 915,000(15) |
| 915,000(15) |
| — |
| — |
| 1,220,000(16) |
|
| Annual Incentive | 1,156,600(15) |
| 1,156,600(15) |
| 424,600(5) |
| 424,600(5) |
| 1,400,600(16) |
|
| Long Term Incentives: | | | | | |
RSUs(6) | — |
| — |
| 659,563 |
| 362,130 |
| 659,563 |
|
2016 Performance Share Awards(7) | — |
| 363,214 |
| 363,214 |
| 363,214 |
| 363,214 |
|
2017 Performance Share Awards(8) | — |
| 194,176 |
| 194,176 |
| 194,176 |
| 291,264 |
|
2018 Performance Share Awards(9) | — |
| 208,636 |
| 208,636 |
| 208,636 |
| 625,907 |
|
| | | | | | |
| Other Benefits: | | | | | |
Retirement Plans(19) | 680,327 |
| 680,327 |
| 567,817 |
| 680,327 |
| 680,327 |
|
SERP(20) | 1,475,886 |
| 1,475,886 |
| 1,475,886 |
| 1,475,886 |
| 1,475,886 |
|
Welfare Benefit(21) | — |
| — |
| 259,215 |
| 259,215 |
| — |
|
| Deferred Compensation | — |
| — |
| — |
| — |
| — |
|
Health Care(17) | — |
| — |
| — |
| — |
| 50,254 |
|
| Disability | — |
| — |
| — |
| — |
| — |
|
| Life Insurance | — |
| — |
| — |
| — |
| — |
|
Outplacement Services(18) | 20,000 |
| 20,000 |
| — |
| — |
| 30,000 |
|
| Total | 4,247,813 |
| 5,013,839 |
| 4,153,107 |
| 3,968,184 |
| 6,797,015 |
|
|
| | | | | | | | | | |
| Alberto L. Satine | For Good
Reason
Resignation
($) | Without
Cause
Termination
($) | Disability
Retirement ($) | Retirement ($) |
Termination Upon a Change in
Control(2) ($) |
| Compensation: | | | | | |
| Severance | — |
| — |
| — |
| — |
| 1,020,000(15) |
|
| Annual Incentive | — |
| — |
| 814,500(5) |
| 814,500(5) |
| 1,630,500(15) |
|
| Long Term Incentives: | | | | | |
RSUs(6) | — |
| — |
| 649,773 |
| 348,596 |
| 649,773 |
|
2014 Performance Share Awards(7) | — |
| 333,465 |
| 333,465 |
| 333,465 |
| 333,465 |
|
2015 Performance Share Awards(8) | — |
| 187,081 |
| 187,081 |
| 187,081 |
| 280,622 |
|
2016 Performance Share Awards(9) | — |
| 210,512 |
| 210,512 |
| 210,512 |
| 631,535 |
|
| | | | | | |
| Other Benefits: | | | | | |
Retirement Plans(18) | 652,737 |
| 652,737 |
| 733,468 |
| 635,976 |
| 652,737 |
|
SERP(19) | 770,951 |
| 770,951 |
| 695,258 |
| 770,951 |
| 770,951 |
|
Welfare Benefit(20) | — |
| — |
| 219,419 |
| 219,419 |
| — |
|
| Deferred Compensation | — |
| — |
| — |
| — |
| — |
|
Health care(16) | — |
| — |
| — |
| — |
| 52,993 |
|
| Disability | — |
| — |
| — |
| — |
| — |
|
| Life Insurance | — |
| — |
| — |
| — |
| — |
|
Outplacement Services(17) | — |
| — |
| — |
| — |
| 30,000 |
|
| Total | 1,423,688 |
| 2,154,746 |
| 3,843,476 |
| 3,520,500 |
| 6,052,576 |
|
| | | Norman Willemse | For Good
Reason
Resignation
($) | Without
Cause
Termination
($) | Disability
Retirement ($) | Retirement ($) |
Termination Upon a Change in
Control(2) ($) | For Good
Reason
Resignation
($) |
| Without
Cause
Termination
($) |
| Disability
Retirement ($) |
| Retirement ($) |
|
Termination Upon a Change in
Control(2) ($) |
|
| Compensation: | | |
| Severance | — |
| — |
| — |
| — |
| 900,000(15) |
| 795,000(15) |
| 795,000(15) |
| — |
| — |
| 1,060,000(16) |
|
| Annual Incentive | — |
| — |
| 720,000(5) |
| 720,000(5) |
| 1,440,000(15) |
| 1,004,900(15) |
| 1,004,900(15) |
| 368,900(5) |
| 368,900(5) |
| 1,216,900(16) |
|
| Long Term Incentives: | | |
RSUs(6) | — |
| — |
| 521,872 |
| 265,993 |
| 521,872 |
| — |
| — |
| 577,644 |
| 318,332 |
| 577,644 |
|
2014 Performance Share Awards(7) | — |
| 237,776 |
| 237,776 |
| 237,776 |
| 237,776 |
| |
2015 Performance Share Awards(8) | — |
| 137,905 |
| 137,905 |
| 137,905 |
| 206,857 |
| |
2016 Performance Share Awards(9) | — |
| 185,756 |
| 185,756 |
| 185,756 |
| 557,268 |
| |
2016 Performance Share Awards(7) | | — |
| 320,501 |
| 320,501 |
| 320,501 |
| 320,501 |
|
2017 Performance Share Awards(8) | | — |
| 171,325 |
| 171,325 |
| 171,325 |
| 256,987 |
|
2018 Performance Share Awards(9) | | — |
| 181,270 |
| 181,270 |
| 181,270 |
| 543,811 |
|
| | | |
| Other Benefits: | | |
Retirement Plans(21) | 313,773 |
| 313,773 |
| 286,754 |
| 286,754 |
| 313,773 |
| |
SERP(19) | 815,834 |
| 815,834 |
| 815,834 |
| 815,834 |
| 815,834 |
| |
Welfare Benefit(20) | — |
| — |
| 174,270 |
| 174,270 |
| — |
| |
Retirement Plans(19) | | 319,629 |
| 319,629 |
| 223,334 |
| 304,598 |
| 319,629 |
|
SERP(20) | | 1,417,745 |
| 1,417,745 |
| 1,417,745 |
| 1,417,745 |
| 1,417,745 |
|
Welfare Benefit(21) | | — |
| — |
| 210,855 |
| 210,855 |
| — |
|
Deferred Compensation(10) | 141,550 |
| 141,550 |
| 141,550 |
| 141,550 |
| 141,550 |
| 97,086 |
| 97,086 |
| 97,086 |
| 97,086 |
| 97,086 |
|
Health care(16) | — |
| — |
| — |
| — |
| 52,993 |
| |
Health Care(17) | | — |
| — |
| — |
| — |
| 50,255 |
|
| Disability | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Life Insurance | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
|
Outplacement Services(17) | — |
| — |
| — |
| — |
| 30,000 |
| |
Outplacement Services(18) | | 20,000 |
| 20,000 |
| — |
| — |
| 30,000 |
|
| Total | 1,271,157 |
| 1,832,594 |
| 3,221,717 |
| 2,965,838 |
| 5,217,923 |
| 3,654,360 |
| 4,327,456 |
| 3,568,660 |
| 3,390,612 |
| 5,890,558 |
|
Notes to Termination Tables
| |
(1) | Assumes total and permanent disability on December 31, 2016.2018. Because Mr. Dauch, Mr. May and Mr. Simonte are not eligible to retire on December 31, 2016,2018, the amounts reflect disability payments until retirement at 65 or for health and life insurance until termination.for 30 months (6 months of short-term disability and 24 months of long-term disability). |
| |
| (2) | For Mr. Dauch and Mr. Simonte, amounts reflect CIC benefits under their employment agreements and outstanding LTI awards as of December 31, 2016.2018. For other NEOs, amounts reflect payments and benefits under the CIC Plan and outstanding LTI awards as of December 31, 2016.2018. |
| |
| (3) | Under their employment agreements, Mr. Dauch and Mr. Simonte are entitled to receive two years’ base salary (payable semimonthly)and target bonus and accrued and unpaid compensation upon resignation for good reason or termination without cause. The annual bonus amounts reflect 2016 awardsamount for each reflects the 2018 award paid in March 2017.2019 and the 2018 target annual bonus for two years. |
|
| |
| Executive Compensation Tables |
| |
| (4) | Upon termination without cause or resignation for good reason on or within two years following a CIC, Mr. Dauch and Mr. Simonte are entitled to a multiple of base salary and annual bonus (Mr. Dauch, three times; Mr. Simonte, two times) plus a target annual bonus prorated through termination. The severance amount for each reflects base salary as of December 31, 20162018 times the applicable multiple. The annual bonus amount for each reflects the 20162018 award paid in March 20172019 and the 20162018 target bonus times the applicable multiple. |
| |
| (5) | In the event of disability or retirement, AAM’s Incentive Compensation Plan for Executive Officers provides a pro-rata award payout through the date of disability or retirement. The amounts reflect 20162018 awards payable in March 20172019 under a disability termination event and also upon retirement for Mr. Satine and Mr. Willemse. |
| |
| (6) | Outstanding RSUs vest upon termination of employment due to death, disability or upon a CIC. The value reflects the number of RSUs multiplied by the closing price of AAM common stock on December 30, 2016.31, 2018. In the event of retirement, RSUs vest pro-rata based on continued employment through retirement. In the event of retirement for Mr. Satine and Mr. Willemse, the amounts reflect the applicable pro-rata portion for each of their 2014-20162016-2018 RSU awards multiplied by the closing price of AAM common stock on December 30, 2016.31, 2018. |
| |
| (7) | The 20142016 performance share awards payable in the event of a disability, retirement, termination without cause or upon a CIC are based on target performance and the pro-rata portion of employment during the performance period. The amounts reflect actual shares paid in March 20172019 based on performance through December 31, 20162018 multiplied by the closing price of AAM stock on December 30, 2016.31, 2018. |
| |
| (8) | The 20152017 performance share awards payable in the event of a disability, retirement or termination without cause are based on target performance and reflect the pro-rata portion of employment during the performance period. As of December 31, 2016,2018, approximately 2/3 of the performance period has lapsed. Amounts reflect pro-rata awards at the target amount of shares multiplied by the closing price of AAM common stock on December 30, 2016.31, 2018. The 20152017 performance share awards vest in full upon termination without cause or resignation for good reason on or within two years following a CIC. |
| |
| (9) | The 20162018 performance share awards payable in the event of a disability, retirement or termination without cause are based on target performance and reflect the pro-rata portion of employment during the performance period. As of December 31, 2016,2018, approximately 1/3 of the performance period has lapsed. Amounts reflect pro-rata awards at the target amount of shares multiplied by the closing price of AAM common stock on December 30, 2016.31, 2018. The 20162018 performance share awards vest in full upon termination without cause or resignation for good reason on or within two years following a CIC. |
| |
| (10) | Amounts reflect account balances in the Executive Deferred Compensation Plan as of December 31, 2016.2018. |
| |
| (11) | Under their employment agreements, Mr. Dauch and Mr. Simonte are entitled to two years' health care benefits upon resignation for good reason or termination without cause. Upon termination on or within two years following a CIC, Mr. Dauch (three years) and Mr. Simonte (two years) are also entitled to health care benefits. In the event of disability, Mr. Dauch and Mr. Simonte receive health care benefits for a maximum of 3130 months (7(6 months of short termshort-term disability and 24 months of long termlong-term disability). |
| |
| (12) | Reflects benefits equal to 100% of base salary for the first year of disability. Based on participant elections, amounts reflectdisability and 60% of base salary until retirement for Mr. Dauch, and 66-2/3% for Mr. May and for Mr. Simonte. |
| |
| (13) | Reflects basic and supplemental life insurance benefits through date of termination (31(30 months from date of disability). |
| |
| (14) | Under their employment agreements, Mr. Dauch ($50,000) and Mr. Simonte ($30,000) are entitled to reimbursement for outplacement services upon termination without cause, resignation for good reason or termination of employment on or within two years following a CIC. |
| |
| (15) | Under the Severance Plan, Mr. May, Mr. Satine and Mr. Willemse are entitled to a cash payment equal to 1.5 times annual base salary and annual bonus upon termination without cause or resignation for good reason plus a prorated annual bonus based on actual performance. The annual bonus amount is based on the target annual bonus for the year of termination. The severance amount reflects base salary as of December 31, 2018 times the severance multiplier of 1.5. The annual bonus amount reflects the 2018 award paid in March 2019 and the 2018 target annual bonus times the multiplier of 1.5. |
| |
| (16) | Under the CIC Plan, Mr. May, Mr. Satine and Mr. Willemse are entitled to a cash payment equal to two times annual base salary and annual bonus upon termination without cause or resignation for good reason on or within two years following a CIC. The annual bonus amount is based on the greater of the target annual bonus for the year of the CIC or for the year of termination. The severance amount reflects base salary as of December 31, 20162018 for two years. The annual bonus amount reflects the 20162018 award paid in March 20172019 and the 20162018 target annual bonus for two years. |
| |
(16)(17) | For Mr. May, Mr. Satine and Mr. Willemse, amounts reflect two years' health care benefits provided upon termination without cause or resignation for good reason on or within two years following a CIC. In the event of disability, Mr. May receiveswould receive health care benefits for a maximum of 3130 months (7(6 months of short termshort-term disability and 24 months of longlong- term disability). |
| |
(17)(18) | Under the CIC Plan, Mr. May, Mr. Satine and Mr. Willemse are entitled to reimbursement of up to $30,000 of outplacement services upon termination of employment without cause or resignation for good reason on or within two years of a CIC. Under the Severance Plan, each are entitled to reimbursement of up to $20,000 of outplacement services upon termination of employment without cause or resignation for good reason. |
| |
(18)(19) | Reflects a joint and survivor benefit payable monthly. |
| |
(19)(20) | Reflects the present value of the frozen SERP benefit calculated assuming a lump sum payment for Mr. Satine and Mr. Willemse. |
| |
(20)(21) | Reflects welfare benefits assuming retirement under the retiree welfare plan. |
|
| |
(21) | Reflects Mr. Willemse's benefits in the Albion Pension Plan as of December 31, 2016.CEO Pay Ratio |
PROPOSAL 3: ADVISORY VOTE ON EXECUTIVE COMPENSATION
AAM is seeking a non-binding advisory vote from our stockholders to approve the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis (CD&A) and narrative and tabular disclosures in this proxy statement. In the CD&A, we provide a detailed description of our compensation programs, including our compensation philosophy and objectives, the individual elements of executive pay, and how the programs are administered. We encourage you to review the CD&A, together with the other narrative and tabular disclosures, in considering your advisory vote on our named executive officers’ compensation (say-on-pay).
Our executive officer compensation program is designed to reward performance that supports the achievement of our business objectives and creates long-term stockholder value. The Compensation Committee considers the following fundamental objectives, among others, in determining our compensation programs:
Compensation and benefit programs should attract, motivate and retain experienced executives who are vital to our short-term and long-term success, profitability and growth;
Compensation and benefit programs should reward Company and individual performance; and
Compensation and benefit programs should foster the long-term focus required to deliver value to our stockholders.
Our executive officer compensation program also reflects an externally competitive compensation structure based on a market study of executive compensation programs in AAM's comparative peer group. In order to ensure that our compensation program drives performance in support of our strategic principles and cultural values, we regularly compare our compensation practices against market best practices and stockholder feedback.
At the 2016 annual meeting of stockholders, over 97% of the votes cast were in favor of our say-on-pay proposal. The Compensation Committee and the Board considered this favorable outcome as a reflection of our stockholders' strong support of the overall executive compensation program for our NEOs.
Although the vote on this proposal is advisory and non-binding, the Board and the Compensation Committee will carefully consider the voting results when making future compensation decisions.
The Board unanimously recommends a vote FOR the approval of the compensation of our named executive officers.
PROPOSAL 4: FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION
Stockholders have an opportunity to vote on a non-binding resolution to advise the Board of Directors on whether the advisory stockholder vote on executive compensation (say-on-pay) should occur every one, two or three years. Although this vote is advisory and non-binding, the Board will review voting results and give consideration to the outcome of the vote when making future decisions about the frequency of future say-on-pay proposals.
The Board believes that submitting the advisory vote on executive compensation to stockholders on an annual basis is the best approach for AAM and its stockholders. While the Board is recommending that you vote in favor of submitting advisory votes every year, you are not voting to approve or disapprove the Board’s recommendation. The proxy card provides you with a choice of voting to submit the say-on-pay proposal every one, two or three years, or of abstaining from voting. The frequency option that receives the most votes “for” of all votes cast on the proposal will be the frequency option approved by stockholders.
The Board unanimously recommends that you vote for the alternative of ONE YEAR for future advisory votes on executive compensation.
2016 COMPENSATION OF NON-EMPLOYEE DIRECTORS
Total 2016 compensation of our non-employee directors is shown below.
|
| | | | | | | | |
| Name | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2) ($) | All Other Compensation(3) ($) | Total ($) |
| Elizabeth A. Chappell | 120,000 |
| 110,015 |
| 2,000 |
| 232,015 |
|
Steven B. Hantler(4) | 55,000 |
| — |
| 3,500 |
| 58,500 |
|
| William L. Kozyra | 110,000 |
| 110,015 |
| 2,000 |
| 222,015 |
|
| Peter D. Lyons | 110,000 |
| 110,015 |
| 500 |
| 220,515 |
|
| James A. McCaslin | 150,000 |
| 110,015 |
| 400 |
| 260,415 |
|
| William P. Miller II | 130,000 |
| 110,015 |
| 400 |
| 240,415 |
|
| John F. Smith | 120,000 |
| 110,015 |
| 400 |
| 230,415 |
|
| Samuel Valenti III | 110,000 |
| 110,015 |
| 1,000 |
| 221,015 |
|
| |
(1) | Fees earned in 2016 for services whether paid in cash or deferred under the AAM Executive Deferred Compensation Plan. |
| |
(2) | Reflects the full grant date fair value of restricted stock unit awards granted on May 5, 2016 calculated in accordance with FASB ASC 718 (without any reduction for risk of forfeiture) as determined based on applying the assumptions used in our financial statements. The grant date fair value of equity awards is calculated using the closing market price of AAM common stock on the grant date of $14.97. See Note 7 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2016 regarding assumptions underlying the valuation of equity awards. |
| |
(3) | The Company reimburses non-employee directors for travel and related out-of-pocket expenses in connection with attending Board, committee and stockholder meetings. From time to time, the Company invites spouses of non-employee directors to attend Company events associated with these meetings. The Company pays for spousal travel and certain other expenses and reimburses non-employee directors for taxes attributable to the income associated with this benefit. Amounts reflect reimbursement of taxes on this income. |
| |
(4) | Mr. Hantler served on the Board through May 5, 2016. |
As of December 31, 2016, each non-employee director had the following number of outstanding RSUs (including those deferred). No options were outstanding as of December 31, 2016.
|
| |
Name | Restricted Stock
Units Outstanding
(#)
|
Elizabeth A. Chappell | 43,933 |
William L. Kozyra | 7,349 |
Peter D. Lyons | 11,361 |
James A. McCaslin | 32,833 |
William P. Miller II | 47,183 |
John F. Smith | 32,833 |
Samuel Valenti III | 16,820CEO Pay Ratio |
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that the Company determine the ratio of the CEO's total compensation (under the Summary Compensation Table definition) to that of AAM's global median employee.
Narrative DescriptionTo determine the median employee, we made a direct determination from our global employee population, excluding non-U.S. locations to the extent that the total employees excluded in these locations in the aggregate did not exceed 5% of Non-Employee Director Compensationour total employee population. We have excluded 723 employees in Germany, 380 in Thailand, 79 in Korea, 4 in Japan and 4 in Luxembourg out of our global employee population of approximately 25,000. We established a consistently applied compensation measure inclusive of base pay, overtime, incentives and allowances. Our population was evaluated as of October 31, 2017 and reflects paid compensation from January 1, 2017 through October 31, 2017. Where allowed under the rule, we have annualized compensation through December 31, 2017. We included the employer cost of medical, dental and vision benefits for both the median employee and the CEO. Non-U.S. compensation was converted to U.S. dollars based on applicable exchange rates as of October 31, 2017. There have been no significant changes in our workforce population or compensation arrangements for 2018 that would impact the methodology that was used to calculate the median employee in 2017, and the Company has determined to use the same median employee identified last year.
2016 Annual Retainer and Committee Chair Retainers
|
| | | |
| Annual retainer | $ | 110,000 |
|
| Committee chair annual retainer: | |
| Audit Committee chair | 20,000 |
|
| Other committee chair | 10,000 |
|
| Lead director annual retainer | 30,000 |
|
Restricted Stock Units (RSUs). Each non-employee director is entitled to receive an annual award of RSUs equal to a grant date value of $110,000Based on the dateabove determination, the total compensation for the median employee is $55,835. Using the CEO's total compensation of $9,490,429 (including the annual stockholder meeting. The awards are payable in stockemployer cost of medical, dental and vest in one year, unless vestingvision benefits), the resulting ratio is accelerated upon death, disability or a change in control.
Deferral. Non-employee directors may elect to defer, on a pre-tax basis, a portion of their retainer and meeting fees and receive tax-deferred earnings (or losses) on the deferrals under AAM’s Executive Deferred Compensation Plan. The rate of return on deferred amounts is based on the performance of selected benchmark funds identified in the plan, which is described in Nonqualified Deferred Compensation above. Non-employee directors may also elect to defer settlement of RSUs until after termination of service from the Board.
Stock Ownership Guidelines. The Compensation Committee has adopted non-employee director stock ownership guidelines equal to a multiple of five times the annual retainer. Non-employee directors are expected to meet the guidelines within three years from the date of election to the Board. Shares owned directly, deferred RSUs and unvested RSUs count toward the guidelines while unexercised stock options are not included. Each non-employee director has met the ownership guidelines or is on track to meet these ownership guidelines. Current stock ownership of non-employee directors is shown in the Security Ownership section below.
Anti-hedging and Anti-pledging policy. Non-employee directors are prohibited from entering into transactions that may result in a financial benefit if our stock price declines, or any hedging transaction involving our stock, including but not limited to the use of financial derivatives, short sales or any similar transactions. Pledging of Company stock is also prohibited.170:1.
SECURITY OWNERSHIP
The following tables show the number of shares of AAM common stock beneficially owned as of March 7, 2017, 2017 (unless otherwise noted) by:
•each person known to us who beneficially owns more than 5% of AAM common stock;
•each of our non-employee directors and nominees;
•our named executive officers (unless otherwise noted); and
•all directors, nominees and executive officers as a group.
A beneficial owner of stock is a person who has voting power (the power to control voting decisions) or investment power (the power to cause the sale of the stock). All individuals listed in the tables have sole voting and investment power over the shares (unless otherwise noted).
The beneficial ownership calculation includes 76,912,332 shares of AAM common stock outstanding on March 7, 2017.
MORE THAN 5% BENEFICIAL OWNERS
The table below shows the name, address and share ownership of each person or organization known by us to be a beneficial owner of more than 5% of AAM’s common stock as of December 31, 2016.
|
| | |
| Name and Address | Shares of Common Stock Beneficially Owned | Percent of Shares Outstanding |
The Vanguard Group(1) | 9,643,121 | 12.60 |
| 100 Vanguard Blvd., Malvern, PA 19355 | | |
Blackrock, Inc.(2) | 9,591,550 | 12.50 |
| 55 East 52nd Street, New York, NY 10055 | | |
Barrow, Hanley, Mewhinney & Strauss, LLC(3) | 4,362,951 | 5.71 |
| 2200 Ross Avenue, 31st Floor, Dallas TX 75201 | | |
Robert Polak, Anchor Bolt Capital, LP(4) | 3,983,389 | 5.21 |
| 300 N. LaSalle Street, Suite 1875, Chicago, Illinois 60654 | | |
|
| |
(1) | Based on the Schedule 13G filed on February 9, 2017 by The Vanguard Group, reporting sole voting power over 151,979 shares, sole investment power over 9,486,224, shared voting power over 8,600 shares and shared investment power over 156,897 shares.Ratification of Independent Registered Public Accounting Firm |
| |
(2) | Based on the Schedule 13G filed on January 12, 2017 by Blackrock, Inc., reporting sole voting power over 9,435,372 shares and sole investment power over 9,591,550 shares. |
| |
(3) | Based on the Schedule 13G filed on February 9, 2017 by Barrow, Hanley, Mewhinney & Strauss, LLC, reporting sole voting power over 2,548,692 shares, shared voting power over 1,814,259 shares and sole investment power over 4,362,951 shares. |
| |
(4) | Based on the Schedule 13G filed on February 14, 2017 by Robert Polak, Anchor Bolt Capital, LP, reporting sole voting power over 3,983,389 shares. |
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Ratification of Independent Auditors
|
|
| | Proposal 3: Ratification of Appointment of Independent |
| | Shares
Beneficially
Owned(1)(2)
| Percent of
Shares
Outstanding
|
Non-Employee Directors and Nominees | | |
Elizabeth A. Chappell | 45,909 |
| * |
William L. Kozyra | 11,361 |
| * |
Peter D. Lyons | 16,361 |
| * |
James A. McCaslin | 36,833 |
| * |
William P. Miller II | 54,883 |
| * |
John F. Smith | 37,833 |
| * |
Samuel Valenti III | 26,820 |
| * |
Named Executive Officers | | |
David C. Dauch(3)
| 310,352 |
| * |
Christopher J. May | 16,415 |
| * |
Michael K. Simonte | 86,521 |
| * |
Alberto L. Satine | 33,349 |
| * |
Norman Willemse | 29,849 |
| * |
Directors, Nominees and Executive Officers as a Group
(15 persons)
| 741,226 |
| *Registered Public Accounting Firm for 2019 |
(*) Less than 1% of the outstanding shares of AAM common stock.
| |
(1) | Includes vested RSUs awarded to non-employee directors that have been deferred. For the number of RSUs held by each non-employee director, see table to the 2016 Compensation of Non-Employee Directors.
|
| |
(2) | Includes the following number of shares of common stock which may be acquired upon exercise of options that were exercisable: 13,000 for Mr. Dauch; 10,000 for Mr. Simonte; 8,000 for Mr. Satine; and 9,700 for Mr. Willemse. |
| |
(3) | Includes 548 shares held in trusts for the benefit of Mr. Dauch’s children. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Based solely on our review of these reports, and written representations from such reporting persons, we believe that the Section 16(a) filing requirements for such reporting persons were met during 2016.
PROPOSAL 5: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2017
The Audit Committee of the Board of Directors of AAM has appointed Deloitte & Touche LLP to serve as the independent registered public accounting firm to examine the Company’s consolidated financial statements for the year ending December 31, 2017.2019. Although ratification is not required by our by-laws or otherwise, the Board is submitting the appointment of Deloitte & Touche LLP to our stockholders as a matter of good corporate practice. If the appointment is not ratified, the Audit Committee will consider whether the appointment is appropriate and will use its discretion in determining whether the appointment of Deloitte & Touche LLP is in the best interests of the Company and its stockholders.
Representatives of Deloitte & Touche LLP will attend the 20172019 annual meeting and be available to make a statement or respond to appropriate questions.
|
| |
| þ | The Board unanimously recommends a vote FOR ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2019. |
|
| |
| Pre-Approval Policy and Auditor Fees |
|
|
Policy for Pre-Approval of Audit and Non-Audit Services |
The Audit Committee’s policy is to approve in advance all audit and permitted non-audit services (including scope, fee structure and the potential effect of the service on the auditor’s independence) to be performed for the Company by its independent registered public accounting firmfirm. Pre-approval is generally provided for 2017.
up to one year, is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee may also pre-approve particular services on a case-by-case basis. The Chairman of the Audit Committee may pre-approve permissible non-audit services that arise between Audit Committee meetings, provided the fees do not exceed a limit established by the Audit Committee and the Audit Committee is informed of the decision to pre-approve the service at its next scheduled meeting. The Audit Committee received regular updates on the amount of fees and scope of audit, non-audit and tax services provided by D&T during 2018. All services provided by D&T during fiscal 2018 were authorized and approved by the Audit Committee in compliance with applicable pre-approval policies and procedures.
AUDIT COMMITTEE DISCLOSURE |
|
| Independent Registered Public Accounting Firm's Fees |
The following table shows the fees for professional services rendered by D&T for the audit of the Company's financial statements for the years ended December 31, 2018 and December 31, 2017, and fees billed for other services rendered by D&T, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates during those periods.
|
| | | | | | |
| | December 31, | |
| | 2018 |
| 2017 |
|
Audit Fees(1) | $ | 6,118,093 |
| $ | 5,014,534 |
|
Audit Related Fees(2) | 221,914 |
| 464,857 |
|
Tax Fees(3) | 700,000 |
| 617,675 |
|
All Other Fees(4) | 79,500 |
| — |
|
| Total | $ | 7,119,507 |
| $ | 6,097,066 |
|
| |
| (1) | Audit fees include fees for the audit of annual consolidated financial statements and internal controls over financial reporting, reviews of quarterly consolidated financial statements, statutory audits, consents and comfort letters, reviews of documents filed with the SEC and other services related to SEC matters. |
| |
| (2) | Audit-related fees are for services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements. |
| |
| (3) | Fees for tax services in 2018 and 2017 consisted of fees for tax compliance, tax advice and tax planning services. |
| |
| (4) | Other fees in 2018 are for non-tax related advisory and consulting services. |
|
| |
| Report of the Audit Committee |
|
|
| Report of the Audit Committee |
The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to the Company’s financial reporting process by monitoring, among other matters, the quality and integrity of the Company’s financial statements, the independence and performance of Deloitte & Touche LLP (D&T), the Company’s independent registered public accounting firm, and the performance of the Company’s internal auditors. Management has primary responsibility for preparing the consolidated financial statements and for the reporting processes, including the design and maintenance of the Company’s system of internal controls. The independent registered public accounting firm is responsible for auditing the Company’s consolidated financial statements and opining upon the effectiveness of the internal control over financial reporting under the standards of the Public Company Accounting Oversight Board (PCAOB). The Audit Committee is solely responsible for the compensation, appointment and oversight of the Company’s independent registered public accounting firm.
In this context, the Audit Committee has met and held discussions with management, D&T and the internal auditors, separately and together, with and without management present, regarding the Company’s audited consolidated financial statements for the year ended December 31, 2016,2018, and the Company’s internal controls over financial reporting. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles in the U.S. The Audit Committee also discussed with D&T the matters required to be discussed by PCAOB Auditing Standard No. 16, Communications with Audit Committees, applicable rules of the SEC, and other relevant professional and regulatory standards, which include, among other items, matters related to the conduct of the audit of the Company’s consolidated financial statements. Further, the Audit Committee discussed with the internal auditors the Company’s plans for and scope of internal audits, identification of audit risks and results of audit activities.
The Audit Committee reviewed and discussed with D&T the auditor’s independence from the Company and the Company’s management. As part of that review, D&T submitted to the Audit Committee the written disclosures and the letter required by requirements of the PCAOB regarding D&T’s communication with the Audit Committee concerning independence. Further, the Audit Committee discussed with D&T the firm’s independence and considered whether D&T’s performance of non-audit services to the Company was compatible with maintaining D&T’s independence. The Audit Committee concluded that D&T is independent from the Company and its management.
Based on the considerations described above and the limitations of the role and responsibilities of the Audit Committee, the Audit Committee recommended to the Board that the audited consolidated financial statements for the year ended December 31, 20162018 be included in the Company’s 20162018 annual report on Form 10-K.
Audit Committee of the Board of DirectorsDirectors*
William P. Miller II, Chairman
Peter D. LyonsChair
John F. Smith
Samuel Valenti III
* Herbert K. Parker and Sandra E. Pierce, who were appointed to the Committee in January 2019, are not included as signatories
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| Voting and Meeting Information |
Policy for Pre-Approval of Audit and Non-Audit ServicesThe Audit Committee’s policy is to approve in advance all audit and permitted non-audit services (including scope, fee structure and the potential effect of the service on the auditor’s independence) to be performed for the Company by its independent registered public accounting firm. Pre-approval is generally provided for up to one year, is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee may also pre-approve particular services on a case-by-case basis. The Chairman of the Audit Committee may pre-approve permissible non-audit services that arise between Audit Committee meetings, provided the fees do not exceed a limit established by the Audit Committee and the Audit Committee is informed of the decision to pre-approve the service at its next scheduled meeting. The Audit Committee received regular updates on the amount of fees and scope of audit, non-audit and tax services provided by D&T during 2016. All services provided by D&T during fiscal 2016 were authorized and approved by the Audit Committee in compliance with applicable pre-approval policies and procedures.Independent Registered Public Accounting Firm’s FeesVoting and Meeting Information
The following table showsWhy am I receiving this proxy statement?
You received these proxy materials because you owned shares of AAM common stock on March 5, 2019 (record date). AAM’s Board is soliciting your proxy to vote your shares at the fees for professional services rendered by D&Tannual meeting. By use of a proxy, you can vote whether or not you attend the meeting. This proxy statement describes the matters on which you are asked to vote so you can make an informed decision.
This proxy statement, together with our Annual Report for the audit of the Company's financial statements for the yearsfiscal year ended December 31, 20162018, a proxy card and December 31, 2015,a voter instruction card, will be mailed or can be accessed online on or about March 21, 2019. We refer to these documents as AAM's proxy solicitation materials.
What is "Notice and fees billed for other services renderedAccess" and why did AAM elect to use it?
We make our proxy solicitation materials available to stockholders electronically under the Notice and Access regulations of the SEC. Most of our stockholders receive a notice of electronic availability (notice) instead of a full set of proxy solicitation materials in the mail. The notice explains how to access and review the proxy solicitation materials and how to vote online. We believe this method of delivery expedites distribution of our proxy solicitation materials and allows us to conserve natural resources and reduce the costs of printing and distributing these materials.
If you received a notice but would prefer to receive printed copies of the proxy solicitation materials in the mail, please follow the instructions in the notice.
How do I vote?
You may vote by D&T,any of the member firms of Deloitte Touche Tohmatsu, and their respective affiliates during those periods.
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| | December 31, |
| | 2016 | 2015 |
Audit Fees(1) | $ | 1,969,240 |
| $ | 2,110,826 |
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Audit Related Fees(2) | 306,192 |
| 25,700 |
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Tax Fees(3) | 310,000 |
| 505,500 |
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All Other Fees(4) | 40,000 |
| 164,095 |
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| Total | $ | 2,625,432 |
| $ | 2,806,121 |
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following methods:
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(1)– | Audit fees include fees forIn person — attending the audit of annual consolidated financial statementsmeeting and internal controls over financial reporting, reviews of quarterly consolidated financial statements, statutory audits, consents and comfort letters, reviews of documents filed with the SEC and other services related to SEC matters.casting a ballot. |
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(2)– | Audit-related fees are for services that are reasonably related toBy mail — using the performance of the audit proxy and/or review of the Company’s consolidated financial statements. This category also refers to fees for the audit of employee benefit plans.voting instruction card provided. |
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(3)– | Fees for tax services in 2016 and 2015 consisted of fees for tax compliance, tax advice and tax planning services.By telephone or over the Internet — following the instructions on your notice card, proxy and/or voting instruction card. |
If you vote by telephone or over the Internet, have your notice card or proxy and/or voting instruction card available. The control number on your card is necessary to process your vote. A telephone or Internet vote authorizes the named proxies to vote in the same manner as if you marked, signed and returned the card by mail. If you hold shares in street name, refer to the voting instructions provided by your broker, bank, trustee or other record holder. If your shares are held in street name and you wish to vote them in person at the annual meeting, you must obtain a "legal proxy" from your holder of record to do so.
How many shares may vote at the meeting?
As of March 5, 2019, we had 111,742,180 shares of common stock outstanding and entitled to vote. Under AAM’s by-laws, a majority of these shares must be present in person or by proxy to hold the annual meeting and take any action during the meeting.
Can I change my vote?
You may change your vote at any time before the annual meeting by:
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| – | revoking it by written notice to AAM’s Secretary at the address on the notice; |
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(4)– | Other feesvoting in 2016 and 2015 consisted of fees for advisory services related to government grants to a foreign subsidiary.person at the annual meeting; or |
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| – | delivering a later-dated proxy vote by mail, telephone or over the internet. |
How many votes do I have?
You will have one vote for each share of AAM common stock outstanding as of March 5, 2019 and entitled to vote at the meeting.
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| Voting and Meeting Information |
OTHER MATTERSHow many votes must be present to hold the meeting?
ExpensesUnder our by-laws, a majority of the votes that can be cast must be present in person or by proxy to constitute a quorum for the annual meeting. Abstentions and shares represented by broker non-votes (explained below) will be counted as present and entitled to vote for purposes of determining a quorum.
What are my choices when voting?
Proposal 1 — You may vote for or against each nominee, or you may abstain from voting your shares.
Proposal 2 — You may vote for or against the proposal to approve the compensation of our named executive officers, or you may abstain from voting your shares.
Proposal 3 — You may vote for or against the proposal to ratify the appointment of the Company’s independent registered public accounting firm, or you may abstain from voting your shares.
How many vote are needed for the proposals to pass?
In an uncontested election, nominees for director who receive a majority of "for" votes cast (meaning the number of shares voted "for" a nominee exceed the number of shares voted "against" that nominee) will be elected. If an incumbent director nominee does not receive a majority of votes cast in an uncontested election, our by-laws require the director to promptly tender a written resignation to the Board. After receiving a recommendation from the Nominating/Corporate Governance Committee, the Board will determine whether to accept or reject the resignation, and will publicly disclose its decision and the rationale behind it within 90 days of the date the election results are certified.
Each of the other proposals will pass if the affirmative vote of a majority of the shares present in person or by proxy are cast in favor of the proposal.
Who will count the votes?
Representatives of Computershare Trust Company, N.A., AAM’s transfer agent, will count the votes and serve as our inspector of election. The inspector of election will attend the annual meeting.
What if I abstain from voting or vote “abstain”?
In you abstain from voting or vote "abstain," your shares will:
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| – | be counted as present for purposes of determining whether there are enough votes to establish a quorum; |
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| – | have no effect on the outcome of the election of directors; or |
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| – | count as a vote against any other proposal to be considered at the annual meeting. |
What if I don't return my proxy card and don't attend the annual meeting?
If your shares are registered in your own name with our transfer agent and you do not vote, your shares will not be voted at all.
If you hold your shares in "street name" and do not give your bank, broker, or other holder of record specific voting instructions, your record holder may vote your shares on the ratification of the independent registered public firm, but may not vote your shares on any other matter that comes before the annual meeting. If you do not provide voting instructions on these matters, the votes will be considered "broker non-votes." Broker non-votes will be counted as present for purposes of determining whether there is a quorum, but will not affect the outcome of any proposal. We urge you to give your record holder voting instructions on each proposal being presented at the annual meeting.
Will I receive a copy of AAM's Annual Report?
We have either mailed the annual report to you with this proxy statement or sent you a notice with the web address for accessing the annual report online.
How can I receive a copy of AAM's 10-K?
There are three ways to obtain, free of charge, a copy of our annual report on Form 10-K for the fiscal year ended December 31, 2018.
1. Visit the Investor Relations section of our website at www.aam.com
2. Write to our Investor Relations Department at One Dauch Drive, Detroit, Michigan 48211-1198
3. Search the SEC's EDGAR database at www.sec.gov
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| Electronic Delivery of Proxy Materials |
Can I access AAM's proxy solicitation materials electronically?
Most stockholders can elect to view future proxy statements and annual reports online instead of receiving copies in the mail. You can choose this option and save us the cost of printing and mailing these documents by:
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| – | following the instructions provided on your proxy card, voter instruction form, or notice |
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| – | going to www.envisionreports.com/axl and following the instructions provided |
If you choose to receive future proxy statements and annual reports electronically, you will receive an e-mail message next year containing the Internet address to access these documents as well as voting instructions.
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| 2020 Stockholder Proposals and Nominations |
Proposals for Inclusion in 2020 Proxy Statement
If you intend to present a proposal at next year's annual meeting and you wish to have the proposal included in the proxy statement for that meeting, the Secretary of AAM must receive your proposal in writing, at the address below, no later than November 22, 2019.
Director Nomination for Inclusion in 2020 Proxy Statement
In February 2019, our Board amended AAM's by-laws to permit a shareholder or a group of up to 20 shareholders that has owned at least 3% of our outstanding common stock for at least three years to nominate and include in our proxy statement candidates for our Board, subject to certain requirements. Written notice of any such nomination must be received by the Company's Secretary on or before November 22, 2019 but no earlier than October 23, 2019. The requirements for such notice are set forth in our by-laws, a copy of which can be found on our website at http://investor.aam.com/governance.
Other Proposals and Nominations
In addition, AAM’s by-laws require stockholders intending to present any matter for consideration at the 2020 annual meeting of stockholders, other than through inclusion in our proxy materials, to notify AAM’s Secretary in writing at the address below on or before February 22, 2020, but no earlier than February 2, 2020.
Where to Send All Proposals and Nominations
Proponents must submit stockholder proposals and recommendations for nomination as a director in writing to the Secretary, American Axle & Manufacturing Holdings, Inc., One Dauch Drive, Detroit, Michigan 48211-1198.
The Secretary will forward the proposals and recommendations to the Nominating/Corporate Governance Committee for consideration.
The Board is soliciting your proxy, and the expense of soliciting proxies will be borne by AAM. Proxy materials were distributed by mail by Computershare Trust Company, N.A. In addition, AAM will reimburse brokers, banks and other holders of record for their expenses in forwarding proxy materials to stockholders.
We have retained Georgeson Inc. to assist in the solicitation of proxies for an estimated fee of $11,000$20,000, plus reimbursement of certain out-of-pocketreasonable and customary expenses. Georgeson may be contacted at (866) 413-5899.(877) 507-1756. In addition, our officers and certain other employees may solicit proxies personally or by telephone fax or e-mail. They will receive no special compensation for these services.
Stockholder ProposalsWe do not know of any other matters that will be considered at the annual meeting. If any other appropriate business should properly come before the meeting, the individuals named in the accompanying proxy card will have discretionary authority to vote according to their best judgment.
For the Board of Directors,
David E. Barnes
Vice President, General Counsel & Secretary
Detroit, Michigan
March 21, 2019
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| Appendix A - Non-GAAP Reconciliation |
Appendix
Non-GAAP Reconciliation
AAM has included in the proxy statement adjusted EBITDA and adjusted EBITDA margin, which are financial metrics used in the AAM Incentive Compensation Program for Executive Officers and the 2012 Omnibus Incentive Plan. These metrics are non-GAAP financial measures. Such information is reconciled to its closest GAAP measure in the tables below in accordance with SEC rules.
Management believes that these non-GAAP financial measures are useful to both management and AAM's shareholders in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision-making purposes. Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, non-GAAP financial measures, as presented by AAM, may not be comparable to similarly titled measures reported by other companies. |
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| 2018 Annual Incentive Performance Metric | Twelve Months Ended |
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| | December 31, 2018 |
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| Earnings before interest expense, income taxes and depreciation and amortization (EBITDA) and Adjusted EBITDA: | (in millions) |
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| Net income | $ | (56.8 | ) |
| Interest expense | (57.1 | ) |
| Income tax expense | 216.3 |
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| Depreciation and amortization | 528.8 |
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| EBITDA | $ | 631.2 |
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| Restructuring and acquisition-related costs | 78.9 |
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| Debt refinancing and redemption costs | 19.4 |
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| Gain on sale of business | (15.5 | ) |
| Goodwill impairment | 485.5 |
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| Non-recurring items: | |
| Gain on settlement of capital lease | (15.6 | ) |
Impact of financial performance for divestiture not included in target(1) | 6.8 |
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| Adjusted EBITDA | $ | 1,190.7 |
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(1) AAM sold the Powertrain aftermarket business in April 2018. Prior to that sale, in February 2018, Annual Meeting
Under SEC rules, stockholder proposalsperformance goals for our annual incentive plan were established. As a result of this timing, full-year EBITDA associated with the sold business was included in the 2018 annual meetingincentive target. This adjustment reflects the impact of stockholders must be received by the Secretarybudgeted EBITDA performance for the portion of AAM at One Dauch Drive, Detroit, MI 48211-1198, on or before November 20, 2017the year that has been excluded from actual EBITDA results. Considering the impact of this adjustment, actual adjusted EBITDA reflects EBITDA of this business through the closing date of April 4, 2018. Accordingly, adjusted EBITDA reported in order to be eligible for inclusion in the Company’s 2018 proxy materials. In addition, AAM’s by-laws require stockholders intending to present any matter for consideration at the 2018 annual meeting of stockholders, other than through inclusion in our proxy materials, to notify AAM’s Secretary in writing at the above address on or before February 23, 2018, but no earlier than February 3, 2018.
Obtaining a copy of 2016 Form 10-K
AAM will furnish to stockholders without charge a copy of our annual report on Form 10-K for the year ended December 31, 2016. Requests should be directed to American Axle & Manufacturing Holdings, Inc., Investor Relations Department, One Dauch Drive, Detroit, MI 48211-1198, or2018 was adjusted by e-mail to investorrelations@aam.com. The 2016 Annual Report on Form 10-K is available on our website at http://investor.aam.com.
Appendix A
Amended and Restated
American Axle & Manufacturing Holdings, Inc.
2012 Omnibus Incentive Plan
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 Establishment. American Axle & Manufacturing Holdings, Inc., a Delaware corporation, establishes an incentive compensation plan to be known as the Amended and Restated American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive Plan, as set forth in this document. This Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards and Other Stock-Based Awards. This Plan shall become effective on May 4, 2017 (the “Effective Date”) and shall remain in effect as provided in Section 1.3.
1.2 Purpose of this Plan. The purpose of the Plan is to foster and promote the long-term financial success of the Company and materially increase shareholder value by (a) motivating superior performance by means of performance-related incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Company by Employees as well as Non-Employee Directors, and (c) enabling the Company to attract and retain qualified and competent persons to serve as members of an outstanding management team and the Board of Directors of the Company upon whose judgment, interest, and performance are required for the successful and sustained operations of the Company.
1.3 Duration of this Plan. Unless sooner terminated as provided herein, this Plan shall terminate ten (10) years from the Effective Date. After this Plan is terminated, no Awards may be granted but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and this Plan’s terms and conditions.
ARTICLE 2. DEFINITIONS
Whenever used in this Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized.
2.1 “Annual Award Limit” or “Annual Award Limits” have the meaning set forth in Section 4.3.
2.2 “Award” means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards or Other Stock-Based Awards, in each case subject to the terms of this Plan.
2.3 “Award Agreement”means either (i) a written or electronic agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Award granted under this Plan, including any amendment or modification thereof, or (ii) a written or electronic statement issued by the Company to a Participant describing the terms and provisions of such Award, including any amendment or modification thereof. The Committee may provide for the use of electronic, Internet or other non-paper Award Agreements, and the use of electronic, Internet or other non-paper means for the acceptance thereof and actions thereunder by a Participant. The Committee shall have the exclusive authority to determine the terms of an Award Agreement evidencing an Award granted under this Plan, subject to the provisions herein. The terms of an Award Agreement need not be uniform among all Participants or among similar types of Awards.
2.4 “Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.5 “Board” or“Board of Directors” means the Board of Directors of the Company.
2.6 “Cash-Based Award” means an Award, denominated in cash, granted to a Participant as described in Article 12.
2.7 “Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time and the applicable regulations and guidance promulgated thereunder and any successor or similar provision.
2.8 “Committee” means the Compensation Committee of the Board or a subcommittee thereof or any other committee designated by the Board to administer this Plan. The members of the Committee shall be appointed from time to time by and shall serve at the discretion of the Board. If the Committee does not exist or cannot function for any reason, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee in which case references to the “Committee” shall be deemed references to the Board. The Committee shall be constituted to comply with the requirements of Rule 16(b) of the Exchange Act, Code Section 162(m) and any applicable listing or governance requirements of any securities exchange on which the Shares are listed; provided, however, that, if any Committee member is found not to have met the qualification requirements of Code Section 162(m) and Section 16(b) of the Exchange Act, any actions taken or Awards granted by the Committee shall not be invalidated by such failure to so qualify.
2.9 “Change in Control” means any one of the following:
(a) any person or entity, including a “group” as defined in Section 13(d)(3) of the Exchange Act other than the Company or a wholly-owned Subsidiary thereof or any employee benefit plan of the Company or any of its Subsidiaries, becomes the beneficial owner of the Company’s securities having 30% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of Directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business);
(b) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of the Directors of the Company or such other corporation or entity after such transaction are held in the aggregate by the holders of the Company’s securities entitled to vote generally in the election of Directors of the Company immediately prior to such transaction;
(c) during any period of two consecutive years, individuals who at the beginning of any such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company’s stockholders, of each Director of the Company first elected during such period was approved by a vote of at least two-thirds of the Directors of the Company then still in office who were Directors of the Company at the beginning of any such period; or
(d) the stockholders of the Company approve a plan of complete liquidation of the Company or the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a liquidation of the Company into a wholly owned subsidiary.
2.10 “Common Stock” means the common stock of the Company, par value $0.01 per share, or such other class of share or other securities as may be applicable under Section 4.4 of the Plan.
2.11 “Company” means American Axle & Manufacturing Holdings, Inc., and any successor thereto as provided in Section 23.23.
2.12 “Covered Employee” means any Employee who is or may become a “Covered Employee,” as defined in Code Section 162(m), and who is designated, either as an individual Employee or class of Employees, by the Committee within the shorter of (i) 90 days after the beginning of the Performance Period, or (ii) 25% of the Performance Period has elapsed, as a “Covered Employee” under this Plan for such applicable Performance Period.
2.13 “Director” means any individual who is a member of the Board of Directors of the Company.
2.14 “Disability” meanseither of the following: (a) inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or (b) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering Employees.
2.15 “Dividend Equivalent” has the meaning set forth in Article 18.
2.16 “Effective Date” has the meaning set forth in Section 1.1.
2.17 “Employee” means any individual performing services for the Company or a Subsidiary and designated as an employee of the Company or the Subsidiary on its payroll records. An Employee shall not include any individual during any period he or she is classified or treated by the Company or Subsidiary as an independent contractor, a consultant or an employee of an employment, consulting or temporary agency or any other entity other than the Company or Subsidiary, without regard to whether such individual is subsequently determined to have been, or is subsequently retroactively reclassified, as a common-law employee of the Company or Subsidiary during such period. An individual shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company or any Subsidiaries. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three months following the 91st day of such leave, any Incentive Stock Option held by a Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonqualified Stock Option. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.
2.18 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto and the regulations and guidance promulgated thereunder.
2.19 “Fair Market Value”or “FMV” means, with respect to a Share, the fair market value thereof as of the relevant date of determination, as determined in accordance with the valuation methodology approved by the Committee (based on objective criteria) from time to time. In the absence of any alternative valuation methodology approved by the Committee, Fair Market Value shall be deemed to be equal to the closing selling price of a Share on the trading day immediately preceding the date on which such valuation is made on the New York Stock Exchange (“NYSE”), or such established national securities exchange as may be designated by the Committee or, in the event that the Common Stock is not listed for trading on the NYSE or such other national securities exchange as may be designated by the Committee but is quoted on an automated system, in any such case on the valuation date (or, if there were no sales on the valuation date, the average of the highest and lowest quoted selling prices as reported on said composite tape or automated system for the most recent day during which a sale occurred). The definition of FMV may differ depending on whether FMV is in reference to the grant, exercise, vesting, settlement or payout of an Award.
2.20 “Grant Date” means the date an Award is granted to a Participant pursuant to the Plan.
2.21 “Grant Price” means the price established at the time of grant of an SAR pursuant to Article 7.
2.22 “Incentive Stock Option”or “ISO” means an Award granted pursuant to Article 6 that is designated as an Incentive Stock Option and that is intended to meet the requirements of Code Section 422 or any successor provision.
2.23 “Insider” shall mean an individual who is, on the relevant date, an officer (as defined in Rule 16a-1(f) of the Exchange Act (or any successor provision)) or Director of the Company, or a more than 10% Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Board in accordance with Section 16 of the Exchange Act.
2.24 “Non-Employee Director” means a Director who is not an Employee.
2.25 “Nonqualified Stock Option”or “NQSO” means an Award granted pursuant to Article 6 that is not intended to meet the requirements of Code Section 422, or that otherwise does not meet such requirements.
2.26 “Option” means an Award granted to a Participant pursuant to Article 6, which Award may be an Incentive Stock Option or a Nonqualified Stock Option.
2.27 “Option Price” means the price at which a Share may be purchased by a Participant pursuant to an Option.
2.28 “Other Stock-Based Award” means an equity-based or equity‑related Award not otherwise described by the terms of this Plan that is granted pursuant to Article 12.
2.29 “Participant” means any eligible individual as set forth in Article 5 to whom an Award is granted.
2.30 “Performance-Based Compensation”means compensation under an Award that is intended to satisfy the requirements of Code Section 162(m) for certain performance-based compensation paid to Covered Employees. Notwithstanding the foregoing, nothing in this Plan shall be construed to mean that an Award that does not satisfy the requirements for performance-based compensation under Code Section 162(m) does not constitute performance-based compensation for other purposes, including Code Section 409A.
2.31 “Performance Measures” means measures, as described in Article 14, upon which performance goals are based and that are approved by the Company’s shareholders pursuant to this Plan in order to qualify Awards as Performance-Based Compensation.
2.32 “Performance Period” means the period of time during which pre‑established performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Award.
2.33 “Performance Share” means an Award granted pursuant to Article 10.
2.34 “Performance Unit” means an Award granted pursuant to Article 11.
2.35 “Period of Restriction” means the period when Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture (based on the passage of time, the achievement of performance goals or upon the occurrence of other events as determined by the Committee, in its discretion) as provided in Articles 8 and 9.
2.36 “Person”shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.
2.37 “Plan” means the Amended and Restated American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive Plan, as may be amended from time to time.
2.38 “Restricted Stock” means an Award granted pursuant to Article 8.
2.39 “Restricted Stock Unit” means an Award granted pursuant to Article 9.
2.40 “Retirement” means the Participant’s voluntary resignation at any time (i) after attaining age 65, or (ii) after attaining age 55 but prior to age 65 with ten or more years of continuous service with the Company or a Subsidiary.
2.41 “Share” means a share of Common Stock.
2.42 “Stock Appreciation Right” or “SAR”means an Award granted pursuant to Article 7.
2.43 “Subsidiary” means (i) a corporation or other entity (domestic or foreign) with respect to which the Company, directly or indirectly, has the power, whether through the ownership of voting securities, by contract or otherwise, to elect at least a majority of the members of such corporation’s board of directors or analogous governing body, or (ii) any other corporation or entity in which the Company, directly or indirectly, has an equity or similar interest and which the Committee designates as a Subsidiaryamount for purposes of the Plan.
2.44 “Successor”has the meaning set forth in Section 23.23.
2.45 “Termination of Employment” means the termination of the Participant’s employment with the Company and the Subsidiaries, regardless of the reason for the termination of employment.
2.46 “Termination of Directorship” means the time when a Non‑Employee Director ceases to be a Non-Employee Director for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected or death.
2.47 “Third-Party Service Provider” means any consultant, agent, advisor or independent contractor who renders bona fide services to the Company or a Subsidiary that (a) are not in connection with the offer and sale of the Company’s securities in a capital raising transaction, (b) do not directly or indirectly promote or maintain a market for the Company’s securities, and (c) are provided by a natural person who has contracted directly with the Company or Subsidiary to render such services.
ARTICLE 3. ADMINISTRATION
3.1 General. The Committee shall be responsible for administering this Plan, subject to this Article 3 and the other provisions of this Plan. The Committee may employ attorneys, consultants, accountants, agents and other individuals, any of whom may be an Employee, and the Committee, the Company, and its officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such individuals. No member of the Committee shall be liable for any action taken or not taken in reliance upon any such information and/or advice. All actions taken and all interpretations and determinations made by the Committee shall be made in its sole discretion and shall be final, binding and conclusive upon the Participants, the Company or Subsidiary, and all other interested individuals.
3.2 Authority of the Committee. Subject to any express limitations set forth in the Plan, the Committee shall have full and exclusive discretionary power and authority to take such actions as it deems necessary and advisable with respect to the administration, interpretation and implementation of the Plan including, but not limited to, the following:
(a) To determine from time to time which of the persons eligiblecalculating performance achievements under the Plan shall be granted Awards, when and how each Award shall be granted, what type or combination of types of Awards shall be granted, the provisions of each Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Shares pursuant to an Award and the number of Shares subject to an Award;
(b) To construe and interpret the Plan and Awards granted under it, and to establish, amend, and revoke rules and regulations for its administration. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in an Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective;
(c) To approve forms of Award Agreements forplans that use under the Plan;
(d) To determine Fair Market Value of a Share in accordance with Section 2.19 of the Plan;
(e) To amend the Plan, an Award or any Award Agreement after the date of grant subject to the terms of the Plan;
(f) To adopt sub-plans and/or special provisions applicable to stock awards regulated by the laws of a jurisdiction other than and outside of the United States. Such sub-plans and/or special provisions may take precedence over other provisions of the Plan, but unless otherwise superseded by the terms of such sub-plans and/or special provisions, the provisions of the Plan shall govern;
(g) To authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Board;
(h) To determine whether Awards will be settled in Shares, cash or in any combination thereof;
(i) To determine whether Awards will provide for Dividend Equivalents;
(j) To establish a program whereby Participants designated by the Committee may elect to receive Awards under the Plan in lieu of compensation otherwise payable in cash; and
(k) To impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by a Participant of any Shares, including, without limitation, restrictions under an insider trading policy and restrictions as to the use of a specified brokerage firm for such resales or other transfers.
3.3 Delegation. To the extent not prohibited by applicable laws, rules and regulations, the Committee may delegate to (i) one or more of its members, (ii) one or more officers of the Company or any Subsidiary or (iii) one or more agents or advisors such administrative duties or powers as it may deem appropriate or advisable under such conditions and limitations as the Committee may set at the time of such delegation or thereafter. The Committee or any individuals to whom it has delegated duties or powers as aforesaid may employ one or more individuals to render advice with respect to any responsibility the Committee or such individuals may have under this Plan. Notwithstanding the foregoing, the Committee may not delegate its authority (i) to make Awards to Employees (A) who are Insiders, (B) whose compensation for such fiscal year may be subject to the limit on deductible compensation pursuant to Code Section 162(m) or (C) who are officers of the Company who are delegated authority by the Committee hereunder, or (ii) pursuant to Section 21 of the Plan. For purposes of the Plan, reference to the Committee shall be deemed to refer to any subcommittee, subcommittees, or other persons or groups of persons to whom the Committee delegates authority pursuant to this Section 3.3.
ARTICLE 4. SHARES SUBJECT TO THIS PLAN AND MAXIMUM AWARDS
4.1 Number of Shares Authorized and Available for Awards. Subject to adjustment as provided under the Plan, the maximum number of Shares that are available for Awards under the Plan shall be 9,200,000 Shares. Such Shares may be authorized and unissued Shares, Shares that have been reacquired by the Company, treasury Shares or any combination of the foregoing, as may be determined from time to time by the Board or by the Committee. Any of the authorized Shares may be used for any type of Award under the Plan, and any or all of the Shares may be allocated to Incentive Stock Options.
4.2 Share Usage. The number of Shares remaining available for issuance will be reduced by the number of Shares subject to outstanding Awards and, for Awards that are not denominated by Shares, by the number of Shares actually delivered upon settlement or payment of the Award. For purposes of determining the number of Shares that remain available for issuance under the Plan, the number of Shares related to an Award granted under this Plan that terminates by expiration, forfeiture, cancellation or otherwise without the issuance of the Shares, shall be available again for grant under this Plan. The following Shares, however, shall not be available again for grant under this Plan;
(a) Shares not issued or deliveredEBITDA performance as a result of net settlement of an outstanding Option or SAR;
(b) Shares delivered to or withheld by the Company to pay the exercise price of or withholding taxes with respect to an Option; and
(c) Shares repurchased with proceeds from the payment of the exercise price of an Option.
4.3 Annual Award Limits. Subject to adjustments pursuant to Section 4.4 and, in the case of Non-Employee Directors, Section 16.1:
(a) the maximum number of Shares that may be issued pursuant to Options and SARs granted to any Participant in any calendar year shall be 2,000,000 Shares;
(b) the maximum number of Shares that may be paid to any Participant in any calendar year under an Award of Restricted Stock, Restricted Stock Units, Performance Shares or Other Stock Based Awards shall be 2,000,000 Shares determined as of the date of grant; and
(c) the maximum aggregate amount that may be paid to any Participant in any calendar year under an Award of Performance Units, Cash-Based Awards or any other Award that is payable in cash shall be $6,000,000, determined as of the date of grant.
4.4 Adjustments in Authorized Shares. Adjustment in authorized Shares available for issuance under the Plan or under an outstanding Award and adjustments in Annual Award Limits shall be subject to the following provisions:
(a) In the event of any corporate event or transaction such as a merger, consolidation, reorganization, recapitalization, separation, reclassification, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up, spin-off, distribution of stock or property of the Company, combination of Shares, exchange of Shares, dividend in kind, extraordinary cash dividend, rights offering to purchase Shares at a price that is substantially below FMV or any other similar corporate event or transaction (“Corporate Transactions”), the Committee, in order to preserve, but not increase, Participants’ rights under this Plan, shall substitute or adjust, as applicable, (1) the number and kind of Shares that may be issued under this Plan or under particular forms of Awards, (2) the number and kind of Shares subject to outstanding Awards (including by payment of cash to a Participant), (3) the Option Price or Grant Price applicable to outstanding Awards, and (4) the Annual Award Limits and other value determinations applicable to outstanding Awards. The Committee, in its discretion, shall determine the methodology or manner of making such substitution or adjustment subject to applicable laws, rules and regulations.
(b) In addition to the adjustments permitted under paragraph 4.4(a) above, the Committee, in its sole discretion, may make such other adjustments or modifications in the terms of any Award that it deems appropriate to reflect any Corporate Transaction, including, but not limited to, modifications of performance goals and changes in the length of Performance Periods, subject to the limitations set forth in Section 14.4.
(c) The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under this Plan. Unless otherwise determined by the Committee, such adjusted Awards shall be subject to the same restrictions and vesting or settlement schedule to which the underlying Award is subject.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 Eligibility to Receive Awards. Individuals eligible to participate in this Plan include all Employees, Directors and Third-Party Service Providers.
5.2 Participation in the Plan. Subject to the provisions of this Plan, the Committee may, from time to time, select from all individuals eligible to participate in the Plan, those individuals to whom Awards shall be granted and shall determine, in its sole discretion, the nature of any and all terms permissible by law and the amount of each Award.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its sole discretion. Each grant of an Option shall be evidenced by an Award Agreement which shall specify whether the Option is in the form of a Nonqualified Stock Option or an Incentive Stock Option.
6.2 Option Price. The Option Price for each grant of an Option shall be determined by the Committee in its sole discretion and shall be specified in the Award Agreement evidencing such Option; provided, however, the Option Price must be at least equal to 100% of the FMV of a Share as of the Option’s Grant Date, subject to adjustment as provided for under Section 4.4.
6.3 Term of Option. The term of an Option granted to a Participant shall be determined by the Committee, in its sole discretion; provided, however, no Option shall be exercisable later than the tenth anniversary date of its grant. If upon the expiration of the term of an Option (other than an Incentive Stock Option), a Participant is prohibited from trading in the Shares by applicable laws, rules or regulations or the Company’s insider trading plan as in effect from time to time, the term of the Option shall be automatically extended to the 30th day following the expiration of such prohibition; provided, however, that this provision shall not apply if prohibited by applicable laws, rules and regulations in effect from time to time.
6.4 Exercise of Option. An Option shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which terms and restrictions need not be the same for each grant or for each Participant.
6.5 Payment of Option Price. An Option shall be exercised by the delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified or accepted by the Committee, or by complying with any alternative procedures that may be authorized by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. A condition of the issuance of the Shares as to which an Option shall be exercised shall be the payment of the Option Price. The Option Price of any exercised Option shall be payable to the Company in accordance with one of the following methods:
(a) in cash or its equivalent;
(b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the Option Price;
(c) by a cashless (broker-assisted) exercise in accordance with procedures authorized by the Committee from time to time;
(d) through net share settlement or similar procedure involving the withholding of Shares subject to the Option with a value equal to the Option Price;
(e) by any combination of (a), (b), (c) and (d); or
(f) any other method approved or accepted by the Committee in its sole discretion.
Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars or Shares, as applicable.
6.6 Special Rules Regarding ISOs. The terms of any Incentive Stock Option (“ISO”) granted under the Plan shall comply in all respects with the provisions of Code Section 422, or any successor provision thereto, as amended from time to time. Notwithstanding any provision of the Plan to the contrary, an Option granted in the form of an ISO to a Participant shall be subject to the following rules:
(a) Special ISO definitions:
(i) “Parent Corporation” shall mean as of any applicable date a corporation in respect of the Company that is a parent corporation within the meaning of Code Section 424(e).
(ii) “ISO Subsidiary” shall mean as of any applicable date any corporation in respect of the Company that is a subsidiary corporation within the meaning of Code Section 424(f).
(iii) A “10% Owner” is an individual who owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its Parent Corporation or any ISO Subsidiary.
(b) Eligible Employees. An ISO may be granted solely to eligible Employees of the Company, Parent Corporation, or ISO Subsidiary.
(c) Specified as an ISO. An Award Agreement evidencing the grant of an ISO shall specify that such grant is intended to be an ISO.
(d) Option Price. The Option Price for each grant of an ISO shall be determined by the Committee in its sole discretion and shall be specified in the Award Agreement; provided, however, the Option Price must be at least equal 100% of the Fair Market Value of a Share as of the ISO’s Grant Date (in the case of 10% Owners, the Option Price may not be not less than 110% of such Fair Market Value), subject to adjustment provided for under Section 4.4.
(e) Right to Exercise. Any ISO granted to a Participant shall be exercisable during his or her lifetime solely by such Participant.
(f) Exercise Period. The period during which a Participant may exercise an ISO shall not exceed ten years (five years in the case of a Participant who is a 10% Owner) from the date on which the ISO was granted.
(g) Termination of Employment. In the event a Participant terminates employment due to death or Disability (as defined in Code Section 22(e)(3)), the Participant (or, in the case of death, the person(s) to whom the Option is transferred by will or the laws of descent and distribution) shall have the right to exercise the Participant’s ISO award during the period specified in the applicable Award Agreement solely to the extent the Participant had the right to exercise the ISO on the date of his death or Disability; as applicable, provided, however, that such period may not exceed one year from the date of such termination of employment or if shorter, the remaining term of the ISO. In the event a Participant terminates employment for reasons other than death or Disability, the Participant shall have the right to exercise the Participant’s ISO during the period specified in the applicable Award Agreement solely to the extent the Participant had the right to exercise the ISO on the date of such termination of employment; provided, however, that such period may not exceed three months from the date of such termination of employment or if shorter, the remaining term of the ISO.
(h) Dollar Limitation. To the extent that the aggregate Fair Market Value of (i) the Shares with respect to which Options designated as Incentive Stock Options plus (ii) the shares of stock of the Company, Parent Corporation and any ISO Subsidiary with respect to which other Incentive Stock Options are exercisable for the first time by a holder of such Incentive Stock Options during any calendar year under all plans of the Company and ISO Subsidiary exceeds $100,000, such Options shall be treated as Nonqualified Stock Options. For purposes of the preceding sentence, Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option or other incentive stock option is granted.
(i) Duration of Plan. No ISO may be granted more than ten years after the earlier of (a) adoption of this Plan by the Board and (b) the Effective Date.
(j) Notification of Disqualifying Disposition. If any Participant shall make any disposition of Shares issued pursuant to the exercise of an ISO, such Participant shall notify the Company of such disposition within 30 days thereof. The Company shall use such information to determine whether a disqualifying disposition as described in Code Section 421(b) has occurred.
(k) Transferability. No ISO may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution; provided, however, that at the discretion of the Committee, an ISO may be transferred to a grantor trust under which Participant making the transfer is the sole beneficiary.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 Grant of SARs. SARs may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its sole discretion. Each grant of SARs shall be evidenced by an Award Agreement.
7.2 Grant Price. The Grant Price for each grant of an SAR shall be determined by the Committee and shall be specified in the Award Agreement evidencing the SAR; provided, however, the Grant Price must be at least equal to 100% of the FMV of a Share as of the Grant Date, subject to adjustment as provided for under Section 4.4.
7.3 Term of SAR. The term of an SAR granted to a Participant shall be determined by the Committee, in its sole discretion; provided, however, no SAR shall be exercisable later than the tenth anniversary date of its grant.
7.4 Exercise of SAR. An SAR shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which terms and restrictions need not be the same for each grant or for each Participant.
7.5 Notice of Exercise. An SAR shall be exercised by the delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified or accepted by the Committee, or by complying with any alternative procedures that may be authorized by the Committee, setting forth the number of Shares with respect to which the SAR is to be exercised.
7.6 Settlement of SARs. Upon the exercise of an SAR, pursuant to a notice of exercise properly completed and submitted to the Company in accordance with Section 7.5, a Participant shall be entitled to receive payment from the Company in an amount equal to the product of (a) and (b) below:
(a) The excess of the Fair Market Value of a Share on the date of exercise over the Grant Price.
(b) The number of Shares with respect to which the SAR is exercised.
Payment shall be made in cash, Shares or a combination thereof as specified in the Award Agreement.
ARTICLE 8. RESTRICTED STOCK
8.1 Grant of Restricted Stock. Restricted Stock may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its sole discretion. Each grant of Restricted Stock shall be evidenced by an Award Agreement.
8.2 Nature of Restrictions. Each grant of Restricted Stock shall subject to a Restriction Period that shall lapse upon the satisfaction of such conditions and restrictions as are determined by the Committee in its sole discretion and set forth in an applicable Award Agreement. Such conditions or restrictions may include, without limitation, one or more of the following:
(a) A requirement that a Participant pay a stipulated purchase price for each Share of Restricted Stock;
(b) Restrictions based upon the achievement of specific performance goals;
(c) Time-based restrictions on vesting following the attainment of the performance goals;
(d) Time-based restrictions; and/or
(e) Restrictions under applicable laws and restrictions under the requirements of any stock exchange or market on which such Shares are listed or traded.
8.3 Issuance of Shares. To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions or restrictions applicable to such Shares have been satisfied or lapse. Shares of Restricted Stock covered by each Restricted Stock grant shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or lapsed (including satisfaction of any applicable tax withholding obligations).
8.4 Shareholder Rights. Unless otherwise determined by the Committee and set forth in a Participant’s applicable Award Agreement, to the extent permitted or required by law a Participant holding Shares of Restricted Stock granted hereunder shall be granted full rights as a shareholder (including voting rights) with respect to those Shares during the Period of Restriction.
ARTICLE 9. RESTRICTED STOCK UNITS
9.1 Grant of Restricted Stock Units. Restricted Stock Units may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, in its sole discretion. A grant of a Restricted Stock Unit or Restricted Stock Units shall not represent the grant of Shares but shall represent a promise to deliver a corresponding number of Shares or the value of each Share based upon the completion of service, performance conditions, or such other terms
and conditions as specified in the applicable Award Agreement over the Restriction Period. Each grant of Restricted Stock Units shall be evidenced by an Award Agreement.
9.2 Nature of Restrictions. Each grant of Restricted Stock Units shall be subject to a Restriction Period that shall lapse upon the satisfaction of such conditions and restrictions as are determined by the Committee in its sole discretion and set forth in an applicable Award Agreement. Such conditions or restrictions may include, without limitation, one or more of the following:
(a) A requirement that a Participant pay a stipulated purchase price for each Restricted Stock Unit;
(b) Restrictions based upon the achievement of specific performance goals;
(c) Time-based restrictions on vesting following the attainment of the performance goals;
(d) Time-based restrictions; and/or
(e) Restrictions under applicable laws or under the requirements of any stock exchange on which Shares are listed or traded.
9.3 Settlement and Payment Restricted Stock Units. Unless otherwise elected by the Participant or otherwise provided for in the Award Agreement, Restricted Stock Units shall be settled upon the date such Restricted Stock Units vest. Such settlement may be made in Shares, cash or a combination thereof, as specified in the Award Agreement.
ARTICLE 10. PERFORMANCE SHARES
10.1 Grant of Performance Shares. Performance Shares may be granted to Participants in such number, and upon such terms and at any time and from time to time as shall be determined by the Committee, in its sole discretion. Each grant of Performance Shares shall be evidenced by an Award Agreement.
10.2 Value of Performance Shares. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Grant Date. The Committee shall set performance goals in its discretion that, depending on the extent to which they are met over the specified Performance Period, shall determine the number of Performance Shares that shall be paid to a Participant.
10.3 Earning of Performance Shares. After the applicable Performance Period has ended, the number of Performance Shares earned by the Participant over the Performance Period shall be determined as a function of the extent to which the applicable corresponding performance goals have been achieved. This determination shall be made solely by the Committee.
10.4 Form and Timing of Payment of Performance Shares. The Committee shall pay at the close of the applicable Performance Period, or as soon as practicable thereafter, any earned Performance Shares in the form of cash or in Shares or in a combination thereof, as specified in a Participant’s applicable Award Agreement. Any Shares paid to a Participant under this Section 10.4 may be subject to any restrictions deemed appropriate by the Committee.
ARTICLE 11. PERFORMANCE UNITS
11.1 Grant of Performance Units. Subject to the terms and provisions of this Plan, Performance Units may be granted to a Participant in such number, and upon such terms and at any time and from time to time as shall be determined by the Committee, in its sole discretion. Each grant of Performance Units shall be evidenced by an Award Agreement.
11.2 Value of Performance Units. Each Performance Unit shall have an initial notional value equal to a dollar amount determined by the Committee, in its sole discretion. The Committee shall set performance goals in its discretion that, depending on the extent to which they are met over the specified Performance Period, will determine the number of Performance Units that shall be settled and paid to the Participant.
11.3 Earning of Performance Units. After the applicable Performance Period has ended, the number of Performance Units earned by the Participant over the Performance Period shall be determined as a function of the extent to which the applicable corresponding performance goals have been achieved. This determination shall be made solely by the Committee.
11.4 Form and Timing of Payment of Performance Units. The Committee shall pay at the close of the applicable Performance Period, or as soon as practicable thereafter, any earned Performance Units in the form of cash or in Shares or in a combination thereof, as specified in a Participant’s applicable Award Agreement. Any Shares paid to a Participant under this Section 11.4 may be subject to any restrictions deemed appropriate by the Committee.
ARTICLE 12. OTHER STOCK-BASED AWARDS AND CASH-BASED AWARDS
12.1 Grant of Other Stock-Based Awards and Cash-Based Awards.
(a) The Committee may grant Other Stock-Based Awards not otherwise described by the terms of this Plan, including, but not limited to, the grant or offer for sale of unrestricted Shares and the grant of deferred Shares or deferred Share units, in such amounts and subject to such terms and conditions, as the Committee shall determine, in its sole discretion. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares.
(b) The Committee, at any time and from time to time, may grant Cash-Based Awards to a Participant in such amounts and upon such terms as the Committee shall determine, in its sole discretion.
(c) Each grant of Other Stock-Based Awards and Cash-Based Awards shall be evidenced by an Award Agreement.
12.2 Value of Other Stock-Based Awards and Cash-Based Awards.
(a) Each Other Stock-Based Award shall be expressed in terms of Shares or units based on Shares, as determined by the Committee, in its sole discretion.
(b) Each Cash-Based Award shall specify a payment amount or payment range as determined by the Committee, in its sole discretion. If the Committee exercises its discretion to establish performance goals, the value of Cash-Based Awards paid to the Participant will depend on the extent to which such performance goals are met.
12.3 Payment of Other Stock-Based Awards and Cash-Based Awards. Payment, if any, with respect to Cash-Based Awards and Other Stock-Based Award shall be made in accordance with the terms of the applicable Award Agreement, in cash, Shares or a combination of both as determined by the Committee in its sole discretion.
ARTICLE 13. TRANSFERABILITY OF AWARDS AND SHARES
13.1 Transferability of Awards. Except as provided in Section 13.2, during a Participant’s lifetime, Options and SARs shall be exercisable only by the Participant. Awards shall not be transferable other than by will or the laws of descent and distribution or pursuant to a domestic relations order entered into by a court of competent jurisdiction. No Awards shall be subject, in whole or in part, to attachment, execution or levy of any kind. Any purported transfer in violation of this Section 13.1 shall be null and void.
13.2 Committee Action. Notwithstanding Section 13.1, the Committee may, subject to applicable laws, rules and regulations and such terms and conditions as it shall specify, determine that any or all Awards shall be transferable, for no consideration to a Permitted Transferee. Any Award transferred to a Permitted Transferee shall be further transferable only by last will and testament or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Participant. “Permitted Transferees” include (i) a Participant’s family member, (ii) one or more trusts established in whole or in part for the benefit of one or more of such family members, (iii) one or more entities which are beneficially owned in whole or in part by one or more such family members, or (iv) a charitable or not-for-profit organization. No Award may be transferred for value without shareholder approval.
13.3 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired by a Participant under the Plan as it may deem advisable, including, without limitation, minimum holding period requirements, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed or traded or under any blue sky or state securities laws applicable to such Shares.
ARTICLE 14. PERFORMANCE-BASED COMPENSATION AND COMPLIANCE
WITH CODE SECTION 162(M)
14.1 Compliance with Section 162(m). The provisions of the Plan are intended to ensure that all Options and SARs granted hereunder to any Participant who is or may be a Covered Employee at the time of exercise of such Option or SAR qualify for exemption from the limitation on deductibility imposed by Code Section 162(m) and that such Options and SARs shall therefore be considered Performance-Based Compensation and this Plan shall be interpreted and operated consistent with that intention. The Committee may designate any Award (other than an Option or SAR) as Performance-Based Compensation upon grant, in each case based upon a determination that (i) the Participant is or may be a Covered Employee with respect to such Award, and (ii) the Committee wishes such award to qualify for exemption from the limitation on deductibility imposed by Code Section 162(m) that is set forth in Section 162(m)(4)(c). The Committee shall have the sole authority to specify which Awards are to be granted in compliance with Section 162(m) and treated as Performance-Based Compensation.
14.2 162(m) Performance-Based Compensation Grant. The Participants to receive Performance-Based Compensation will be designated, and the targets for the applicable Performance Measures will be established, by the Committee within ninety (90) days following the commencement of the applicable performance period (or such earlier or later date permitted or required by Code Section 162(m)). Each Participant will be assigned a target dollar amount or number of Shares payable if the applicable performance targets are achieved. Any payment of Performance-Based Compensation intended to comply with Code Section 162(m) shall be conditioned on the written certification of the Committee in each case that the applicable targets for the Performance Measures and any other material conditions were satisfied. The Committee may determine, at the time of Award grant, that if performance exceeds the specified targets, the Award may be settled with payment greater than the target amount, but in no event may such payment exceed the Annual Award Limits. The Committee retains the right to reduce any Award notwithstanding the attainment of the target Performance Measures.
14.3 Performance Measures. The performance goals upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance-Based Compensation shall be limited to the following Performance Measures:
(a) Book value or earnings per Share;
(b) Cash flow, free cash flow or operating cash flow;
(c) Earnings before or after either, or any combination of, interest, taxes, depreciation, or amortization;
(d) Expenses/costs;
(e) Gross, net or pre-tax income (aggregate or on a per-share basis);
(f) Net income as a percentage of sales;
(g) Gross or net operating margins or income, including operating income;
(h) Gross or net sales or revenues;
(i) Gross profit or gross margin;
(j) Improvements in capital structure, cost of capital or debt reduction;
(k) Market share or market share penetration;
(l) Growth in managed assets;
(m) Reduction of losses, loss ratios and expense ratios;
(n) Asset turns, inventory turns or fixed asset turns;
(o) Operational performance measures;
(p) Profitability ratios (pre or post tax);
(q) Profitability of an identifiable business unit or product;
(r) Return measures (including return on assets, return on equity, return on investment, return on capital, return on invested capital, gross profit return on investment, gross margin return on investment, economic value added or similar metric);
(s) Share price (including growth or appreciation in share price and total shareholder return);
(t) Strategic business objectives (including objective project milestones);
(u) Transactions relating to acquisitions or divestitures; or
(v) Working capital.
Any Performance Measure(s) may, as the Committee in its sole discretion deems appropriate, (i) relate to the performance of the Company or any Subsidiary as a whole or any business unit or division of the Company or any Subsidiary or any combination thereof, (ii) be compared to the performance of a group of comparator companies, or published or special index, (iii) be based on change in the Performance Measure over a specified period of time and such change may be measured based on an arithmetic change over the specified period (e.g., cumulative change or average change), or percentage change over the specified period (e.g., cumulative percentage change, average percentage change or compounded percentage change), (iv) relate to or be compared to one or more other Performance Measures, or (v) any combination of the foregoing. Subject to Section 23.1, the Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Article 14.
14.4 Evaluation of Performance. The Performance Measures shall be determined in accordance with generally accepted accounting principles consistently applied on a business unit, divisional, subsidiary or consolidated basis or any combination thereof. The Committee may provide in any Award intended to qualify as Performance-Based Compensation that any evaluation of performance may include or exclude the impact, if any, on reported financial results of any of the following events that occurs during a Performance Period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) changes in tax laws, accounting principles or other laws or provisions, (d) reorganization or restructuring programs, (e) acquisitions or divestitures, (f) foreign exchange gains and losses and (g) gains and losses that are treated as unusual or infrequently occurring items within the meaning of the accounting standards of the Financial Accounting Standard Board or such comparable successor term. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.
14.5 Adjustment of Performance-Based Compensation. Awards that are intended to qualify as Performance-Based Compensation may not be adjusted upward. The Committee shall retain the discretion to adjust such Awards downward, either on a formula or discretionary basis or any combination, as the Committee determines, in its sole discretion.
14.6 Committee Discretion. In the event that applicable tax or securities laws change to permit Committee discretion to alter the governing Performance Measures or permit flexibility with respect to the terms of any Award or Awards to be treated as Performance-Based Compensation without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards that shall not qualify as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of Code Section 162(m) and base vesting on Performance Measures other than those set forth in Section 14.3.
ARTICLE 15. TERMINATION OF EMPLOYMENT; TERMINATION OF DIRECTORSHIP AND TERMINATIONAS A THIRD-PARTY SERVICE PROVIDER
The Committee shall specify at or after the time of grant of an Award the provisions governing the disposition of an Award in the event of a Participant’s Termination of Employment or Termination of
Directorship. Subject to applicable laws, rules and regulations, in connection with a Participant’s termination, as well as Section 23.1, the Committee shall have the discretion to accelerate the vesting, exercisability or settlement of, eliminate the restrictions and conditions applicable to, or extend the post-termination exercise period of an outstanding Award. Such provisions shall be determined by the Committee in its sole discretion and may be specified in the applicable Award Agreement or determined at a subsequent time. The Committee’s decisions need not be uniform among all Award Agreements and Participants and may reflect distinctions based on the reasons for termination. In addition, the Committee shall determine, in its sole discretion, the circumstances constituting a termination as a Third-Party Service Provider and shall set forth those circumstances in each Award Agreement entered into with each Third‑Party Service Provider.
ARTICLE 16. NON-EMPLOYEE DIRECTOR AWARDS
16.1 Awards to Non-Employee Directors. The Board or Committee shall determine and approve all Awards to Non-Employee Directors. The terms and conditions of any grant of any Award to a Non-Employee Director shall be set forth in an Award Agreement. The aggregate maximum Fair Market Value (determined as of the Grant Date) of the Shares with respect to Awards granted under the Plan in any calendar year to any Non-Employee Director when added to retainer fees, meeting fees and any other compensation earned in respect of services as a Non-Employee Director for such a year shall not exceed $1,000,000.
16.2 Awards in Lieu of Fees. The Board or Committee may permit a Non-Employee Director the opportunity to receive an Award in lieu of payment of all or a portion of future director fees (including but not limited to cash retainer fees and meeting fees) or other type of Awards pursuant to such terms and conditions as the Board or Committee may prescribe and set forth in an applicable sub-plan or Award Agreement.
ARTICLE 17. EFFECT OF A CHANGE IN CONTROL
17.1 Change in Control. Subject to Section 23.1,if a Participant has in effect an employment, retention, Change in Control, severance or similar agreement with the Company or any Subsidiary or is subject to a policy or plan that discusses the effect of a Change in Control on a Participant’s Awards, then such agreement, plan or policy shall control. In all other cases, unless provided otherwise in an Award agreement or by the Committee prior to the date of the Change in Control, in the event of a Change in Control:
(a) If a Successor so agrees, some or all outstanding Awards shall be assumed, or replaced with the same type of award with similar terms and conditions, by a Successor in the Change in Control transaction. If applicable, each Award that is assumed by a Successor shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities that would have been issuable to a Participant upon the consummation of such Change in Control had the Award been exercised, vested or earned immediately prior to such Change in Control, and other appropriate adjustments in the terms and conditions of the Award shall be made. Subject to Section 23.1, upon the termination of a Participant’s employment with a Successor in connection with or within twenty-four (24) months following the Change in Control for any reason other than an involuntary termination by a Successor for cause or a voluntary termination by the Participant without good reason (as cause and good reason (or analogous terms) are defined by an applicable employment agreement or a change in control plan or policy (including, without limitation, the AAM Executive Officer Change in Control Plan), if not applicable, the policies generally applicable to employees of a Successor), all of the Participant’s Awards that are in effect as of the date of such termination shall be vested in full or deemed earned in full (assuming the target performance goals provided under such Award were met, if applicable) effective on the date of such termination.
(b) Subject to Section 23.1, to the extent a Successor in the Change in Control transaction does not assume the Awards or issue replacement awards as provided in clause (a), then, unless provided otherwise in an Award agreement or by the Committee, immediately prior to the date of the Change in Control all Awards that are then held by Participants shall be cancelled in exchange for the right to receive the following:
(i) For each Option or SAR, a cash payment equal to the excess of the Change in Control price of the Shares covered by the Option or SAR that is so cancelled over the purchase or grant price of such Shares under the Award;
(ii) For each Share of Restricted Stock and each Restricted Stock Unit, the Change in Control price per Share in cash or such other consideration as the Company or the shareholders of the Company receive in such Change in Control;
(iii) For all Performance Shares and/or Performance Units that are earned but not yet paid, a cash payment equal to the value of the Performance Share and/or Performance Unit;
(iv) For all Performance Shares and Performance Units for which the performance period has not expired, a cash payment equal to the product of (x) and (y) where (x) is the Award the Participant would have earned based on target performance and (y) is a fraction, the numerator of which is the number of calendar months that the Participant was employed by the Company during the performance period (with any partial month counting as a full month for this purpose) and the denominator of which is the number of months in the performance period;
(v) For all other Awards that are earned but not yet paid, a cash payment equal to the value of the other Awards;
(vi) For all other Awards that are not yet earned, a cash payment equal to either the amount that would have been due under such Award(s) if any performance goals (as measured at the time of the Change in Control) were to be achieved at the target level through the end of the performance period or a cash payment based on the value of the Award as of the date of the Change in Control;
(vii) For all Dividend Equivalents, a cash payment equal to the value of the Dividend Equivalents as of the date of the Change in Control.
If the value of an Award is based on the Fair Market Value of a Share, Fair Market Value shall be deemed to mean the per share Change in Control price. The Committee shall determine the per share Change in Control price paid or deemed paid in the Change in Control transaction.
ARTICLE 18. DIVIDENDS AND DIVIDEND EQUIVALENTS
The Committee may provide Participants with the right to receive dividends or payments equivalent to dividends (“Dividend Equivalents”) or interest with respect to an outstanding Award, which payments can either be paid in cash or deemed to have been reinvested in Shares, or a combination thereof, as the Committee shall determine, in each case, subject to all applicable laws, rules and regulations, including, without limitation, Code Section 409A. Dividends or Dividend Equivalents with respect to Awards that vest based on the achievement of Performance Measures shall be accumulated until such Award is earned and vested, and the dividends or Dividend Equivalents shall not be paid if the Performance Measures and time-based vesting restrictions are not satisfied. Dividends or Dividend Equivalents with respect to Awards that are subject to time-based vesting restrictions shall be accumulated until such Awards vest in accordance with their terms, and the dividends or Dividend Equivalents shall not be paid if the time-based vesting restrictions are not satisfied. Notwithstanding the foregoing, no dividends or Dividend Equivalents shall be paid with respect to Options or Stock Appreciation Rights.
ARTICLE 19. BENEFICIARY DESIGNATION
Each Participant under this Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Plan is to be paid in case of his death before he receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime. In the absence of any such beneficiary designation, benefits remaining unpaid or rights remaining unexercised at the Participant’s death shall be paid to or exercised by the Participant’s executor, administrator or legal representative.
ARTICLE 20. RIGHTS OF PARTICIPANTS
20.1 Employment. Nothing in this Plan or an Award Agreement shall (a) interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment with the Company or any Subsidiary at any time or for any reason not prohibited by law or (b) confer upon any Participant any right
to continue his employment or service as a Director or Third-Party Service Provider for any specified period of time. Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company or any Subsidiary and, accordingly, subject to Articles 3 and 21, this Plan and the benefits hereunder may be amended or terminated at any time in the sole and exclusive discretion of the Board without giving rise to any liability on the part of the Company, any Subsidiary, the Committee or the Board.
20.2 Participation. No individual shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award. The Committee may grant more than one Award to a Participant and may designate an individual as a Participant for overlapping periods of time.
20.3 Rights as a Shareholder. Except as otherwise provided herein, a Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record holder of such Shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date on which the Participant becomes the record holder of the Shares.
ARTICLE 21. AMENDMENT AND TERMINATION
21.1 Amendment and Termination of the Plan and Awards. Subject to applicable laws, rules and regulations and Section 21.3 of the Plan, the Board may at any time amend or terminate the Plan or amend or terminate any outstanding Award. Notwithstanding the foregoing, no amendment of this Plan shall be made without shareholder approval if shareholder approval is required pursuant to rules promulgated by any stock exchange or quotation system on which Shares are listed or quoted or by applicable U.S. state corporate laws or regulations, applicable U.S. federal laws or regulations and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.
21.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. Subject to Section 14.4, the Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.4) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under this Plan. By accepting an Award under this Plan, a Participant agrees to any adjustment to the Award made pursuant to this Section 21.2 without further consideration or action.
21.3 Awards Previously Granted. Notwithstanding any other provision of this Plan to the contrary, other than Sections 21.2, 21.4 and 23.15, no termination or amendment of this Plan or an Award Agreement shall adversely affect in any material way any Award previously granted under this Plan, without the written consent of the Participant holding such Award.
21.4 Amendment to Conform to Law. Notwithstanding any other provision of this Plan to the contrary, the Committee shall have the broad authority to amend the Plan, an Award or an Award Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable in order to comply with, take into account changes in, or interpretations of, applicable tax laws, securities laws, employment laws, accounting rules and other applicable laws, rules, rulings and regulations promulgated thereunder. By accepting an Award under this Plan, a Participant agrees to any amendment made pursuant to this Section 21.4 to the Plan and any Award without further consideration or action.
21.5 Repricing of Options and Stock Appreciation Rights. Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of Shares), the terms of outstanding Awards may not be amended, without stockholder approval, to reduce the exercise price of outstanding Options or Stock Appreciation Rights, or to cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards, or Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Options or Stock Appreciation Rights.
ARTICLE 22. TAX WITHHOLDING
22.1 Tax Withholding. The Company may require any individual entitled to receive a payment of an Award to remit to the Company prior to payment, an amount sufficient to satisfy any applicable federal, state, local and foreign tax withholding requirements. The Company shall also have the right to deduct from all cash payments made to a Participant (whether or not such payment is made in connection with an Award) any applicable taxes required to be withheld with respect to such Award.
22.2 Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, upon the settlement of Restricted Stock Units, or upon the achievement of performance goals related to Performance Shares, or any other taxable event arising as a result of an Award granted hereunder (collectively and individually referred to as a “Share Payment”), the Committee may permit or require a Participant to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares from a Share Payment (or repurchase Shares that were previously issued) having a Fair Market Value on the date the withholding is to be determined equal to the minimum statutory withholding requirement or such other rate as will not result in any adverse accounting consequences, as determined by the Company in its sole discretion.
ARTICLE 23. GENERAL PROVISIONS
23.1 Minimum Vesting. All Awards shall be subject to a minimum time-based vesting restriction or Performance Period, as applicable, of not less than one year; provided, however, the requirements set forth in this sentence shall not apply (i) to acceleration in the event of a Termination of Employment or Termination of Directorship on or following a Change in Control, or due to Retirement, death or Disability, (ii) to substitute Awards subject to time-based vesting restrictions no less than the restrictions of the Awards being replaced, and (iii) Awards involving an aggregate number of Shares not in excess of 5% of the total shares authorized for issuance under this Plan.
23.2 Forfeiture Events. The Committee may specify in an Award Agreement that the Participant’s rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events as determined by the Committee in its sole discretion.
23.3 Legend. All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any exchange upon which the Shares are then listed, and any applicable securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
23.4 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural.
23.5 Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
23.6 Requirements of Law. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
23.7 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under this Plan prior to:
(a) Obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and
(b) Completion of any registration or other qualification of the Shares under any applicable national, state or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable.
23.8 Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
23.9 Investment Representations. The Committee may require any individual receiving Shares pursuant to an Award under this Plan to represent and warrant in writing that the individual is acquiring the Shares for investment and without any present intention to sell or distribute such Shares.
23.10 Employees Based Outside of the United States. Notwithstanding any provision of this Plan to the contrary, subject to Section 23.1, in order to comply with the laws in other countries in which the Company or any Subsidiaries operate or have Employees, Directors or Third-Party Service Providers, the Committee, in its sole discretion, shall have the power and authority to:
(a) Determine which Subsidiaries shall be covered by this Plan;
(b) Determine which Employees, Directors or Third-Party Service Providers outside the United States are eligible to participate in this Plan;
(c) Modify the terms and conditions of any Award granted to Employees, Directors or Third-Party Service Providers outside the United States to comply with applicable foreign laws;
(d) Establish sub-plans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable. Any sub-plans and modifications to Plan terms and procedures established under this Section 23.10 by the Committee shall be attached to this Plan document as appendices; and
(e) Take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals.
Notwithstanding the above, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate applicable law.
23.11 Uncertificated Shares. To the extent that this Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be affected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.
23.12 Unfunded Plan. Participants shall have no right, title or interest whatsoever in or to any investments that the Company or any Subsidiaries may make to aid it in meeting its obligations under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other individual. To the extent that any individual acquires a right to receive payments from the Company or any Subsidiary under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company or the Subsidiary, as the case may be. All payments to be made hereunder shall be paid from the general funds of the Company, or the Subsidiary, as the case may be, and no special or separate fund shall be established, and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in this Plan.
23.13 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to this Plan or any Award. The Committee shall determine whether cash, Awards or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
23.14 Retirement and Welfare Plans. Neither Awards made under this Plan nor Shares or cash paid pursuant to such Awards may be included as “compensation” for purposes of computing the benefits payable to any Participant under the Company’s or any Subsidiary’s retirement plans (both qualified and nonqualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a Participant’s benefit.
23.15 Deferrals.
(a) Notwithstanding any contrary provision in the Plan or an Award Agreement, if any provision of the Plan or an Award Agreement contravenes any regulations or guidance promulgated under Code Section 409A or would cause an Award to be subject to additional taxes, accelerated taxation, interest and/or penalties under Code Section 409A, such provision of the Plan or Award Agreement may be modified by the Committee without consent of the Participant in any manner the Committee deems reasonable or necessary. In making such modifications the Committee shall attempt, but shall not be obligated, to maintain, to the maximum extent practicable, the original intent of the applicable provision without contravening the provisions of Code Section 409A. Moreover, any discretionary authority that the Committee may have pursuant to the Plan shall not be applicable to an Award that is subject to Code Section 409A to the extent such discretionary authority would contravene Code Section 409A or the guidance promulgated thereunder.
(b) If a Participant is a “specified employee” as defined under Code Section 409A and the Participant’s Award is to be settled on account of the Participant’s separation from service (for reasons other than death) and such Award constitutes “deferred compensation” as defined under Code Section 409A, then any portion of the Participant’s Award that would otherwise be settled during the six-month period commencing on the Participant’s separation from service shall be settled as soon as practicable following the conclusion of the six-month period (or following the Participant’s death if it occurs during such six-month period).
(c) In accordance with the procedures authorized by, and subject to the approval of, the Committee, Participants may be given the opportunity to defer the payment or settlement of an Award to one or more dates selected by the Participant; provided, however, that the terms of any deferrals must comply with all applicable laws, rules and regulations, including, without limitation, Code Section 409A. No deferral opportunity shall exist with respect to an Award unless explicitly permitted by the Committee on or after the time of grant.
23.16 Nonexclusivity of this Plan. The adoption of this Plan shall not be construed as creating any limitations on the power of the Board or Committee to adopt such other compensation arrangements as it may deem desirable for any Participant.
23.17 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (i) limit, impair, or otherwise affect the Company’s or a Subsidiary’s right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell or transfer all or any part of its business or assets; or, (ii) limit the right or power of the Company or a Subsidiary to take any action that such entity deems to be necessary or appropriate. The proceeds received by the Company from the sale of Shares pursuant to Awards will be used for general corporate purposes.
23.18 Conflicts. In the event of any conflict or inconsistency between the Plan and any Award Agreement, the Plan shall govern and the Award Agreement shall be interpreted to minimize or eliminate any such inconsistency.
23.19 Recoupment. Notwithstanding anything in the Plan to the contrary, all Awards granted under the Plan and any payments made under the Plan shall be subject to claw-back or recoupment as permitted or mandated by applicable law, rules, regulations or Company policy as enacted, adopted or modified from time to time. For the avoidance of doubt, this provision shall apply to any gains realized upon exercise or settlement of an Award.
23.20 Delivery and Execution of Electronic Documents. To the extent permitted by applicable law, the Company may (i) deliver by email or other electronic means (including posting on a website maintained by the Company or by a third party under contract with the Company) all documents relating to the Plan or any Award thereunder (including without limitation, prospectuses and other securities requirements) and all other documents that the Company is required to deliver to its security holders (including without limitation, annual
reports and proxy statements) and (ii) permit Participants to electronically execute applicable Plan documents (including, but not limited to, Award Agreements) in a manner prescribed to the Committee.
23.21 No Representations or Warranties Regarding Tax Effect. Notwithstanding any provision of the Plan to the contrary, the Company, Subsidiaries, the Board and the Committee neither represent nor warrant the tax treatment under any federal, state, local or foreign laws and regulations thereunder (individually and collectively referred to as the “Tax Laws”) of any Award granted or any amounts paid to any Participant under the Plan including, but not limited to, when and to what extent such Awards or amounts may be subject to tax, penalties and interest under the Tax Laws.
23.22 Indemnification. Subject to applicable laws, rules and regulations and the Company’s Certificate of Incorporation as it may be amended from time to time, each individual who is or shall have been a member of the Board, or a Committee appointed by the Board, or an officer of the Company to whom authority was delegated in accordance with Article 3, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any good faith action taken or failure to act under this Plan, (ii) any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his/her own behalf. Notwithstanding the forgoing, no individual shall be entitled to indemnification if such loss, cost, liability or expense is a result of his/her own willful misconduct. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Company’s Articles of Incorporation or By-laws, as a matter of law or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
23.23 Successors. Subject to Article 17, all obligations of the Company under this Plan with respect to Awards granted hereunder shall be binding on any successor to the Company (each, a “Successor”), whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
23.24 Governing Law. The Plan and each Award Agreement shall be governed by the laws of the state of Delaware excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction.
measure.
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| |
| Appendix A - Non-GAAP Reconciliation |
|
| | | | | | | | | | | |
| 2016 - 2018 Long-term Incentive Performance Metric | Twelve Months Ended | |
| | December 31, | |
| | 2018 |
| | 2017 |
| | 2016 |
|
| Earnings before interest expense, income taxes and depreciation and amortization (EBITDA) and Adjusted EBITDA: | (in millions) | |
| Net income | $ | (56.8 | ) | | $ | 337.5 |
| | $ | 240.7 |
|
| Interest expense | (57.1 | ) | | 195.6 |
| | 93.4 |
|
| Income tax expense | 216.3 |
| | 2.5 |
| | 58.3 |
|
| Depreciation and amortization | 528.8 |
| | 428.5 |
| | 201.8 |
|
| EBITDA | $ | 631.2 |
| | $ | 964.1 |
| | $ | 594.2 |
|
| Restructuring and acquisition-related costs | 78.9 |
| | 110.7 |
| | 26.2 |
|
| Debt refinancing and redemption costs | 19.4 |
| | 3.5 |
| | — |
|
| Gain on sale of business | (15.5 | ) | | — |
| | — |
|
| Goodwill impairment | 485.5 |
| | — |
| | — |
|
| Non-recurring items: | | | | | |
| Gain on settlement of capital lease | (15.6 | ) | | 24.9 |
| | — |
|
| Other | — |
| | (0.5 | ) | | (1.0 | ) |
| Adjusted EBITDA | $ | 1,183.9 |
| | $ | 1,102.7 |
| | $ | 619.4 |
|
| | | | | | |
| Net sales, as reported | $ | 7,270.4 |
| | $ | 6,266.0 |
| | $ | 3,948.0 |
|
| | | | | | |
| Adjusted EBITDA margin | 16.3 | % | | 17.6 | % | | 15.7 | % |
| | | | | | |
| 3-year cumulative EBITDA margin | 16.6 | % | | — |
| | — |
|
|
| |
| |
| Electronic Voting Instructions
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on May 4, 2017.
|
| | Vote by Internet
• Go to www.envisionreports.com/axl
• Or scan the QR code with your smartphone
• Follow the steps outlined on the secure website
|
| Vote by telephone
• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone
• Follow the instructions provided by the recorded message
|
Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas.
| x | |
| Appendix B - Director Independence Standards |
qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
|
| | | | | | | | | | | | | | |
| A | Proposals — | The Board of Directors recommends a vote FOR all nominees listed in Proposal 1, FOR Proposal 2, FOR Proposal 3, FOR an annual frequency on Proposal 4 and FOR Proposal 5. |
| 1 | Election of Directors: | For | Against | Abstain | | | For | Against | Abstain | | For | Against | Abstain | + |
| | 01 - James A. McCaslin | o | o | o | 02 - William P. Miller II | o | o | o | 03 - Samuel Valenti III | o | o | o |
| | | | | | For | Against | Abstain | | | | For | Against | Abstain | |
| 2 | Approval of the Amended and Restated American Axle & Manufacturing Holdings, Inc. 2012 Omnibus Incentive Plan | | o | o | o | 3 | Approval, on an advisory basis, of the compensation of the Company's named executive officers. | o | o | o | |
| | | | | 1 Year | 2 Years | 3 Years | Abstain | | | For | Against | Abstain | |
| 4 | Approval, on an advisory basis, of the frequency of future advisory votes on executive compensation. | | o | o | o | o
| 5 | Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2017. | o | o | o | |
| | In their discretion, the proxies are authorized to the extent permitted by law to vote on any and all other matters as may properly come before the meeting, including the authority to vote to adjourn the meeting. | | | |
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| Appendix B | Non-Voting Items | | | | |
Change of Address — Please print new address below.
| Meeting Attendance | |
| | | | Mark box to the right if you plan to attend the Annual Meeting. | Π|
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C | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
| Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. This section must be completed for your instructions to be executed.
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| Date (mm/dd/yyyy) — Please print date below. | Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. |
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02AGBA
qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
Proxy — American Axle & Manufacturing Holdings, Inc.
Board of DirectorsPROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON May 4, 2017
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSDirector Independence Guidelines
David C. Dauch
A determination of director independence requires the Board to establish that a director does not have any direct or indirect material relationship with AAM(1). In making an independence determination, the Board will consider all relevant facts and David E. Barnes, or either of them, with full power of substitution, are authorized to vote all of your shares as if you were present atcircumstances not only from the Annual Meeting of Stockholders of American Axle & Manufacturing Holdings, Inc. to be held in the Auditorium at AAM’s World Headquarters Complex, One Dauch Drive, Detroit, Michigan, at 8:00 a.m. on May 4, 2017 or at any adjournmentsstandpoint of the meeting.director, but also from that of persons or organizations with which the director has an affiliation.
This proxy
A director will not be voted as you specifyconsidered independent if, within the preceding three years, any of the following apply:
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| • | the director was employed by AAM, or an immediate family member(2) served as an executive officer of AAM; |
the director received direct compensation from AAM, other than director and committee fees and pension or other forms of deferred compensation for prior service (and not contingent on continued service);
an immediate family member received more than $120,000 per year in direct compensation from AAM;
the director is affiliated with or employed by AAM’s independent auditor, or an immediate family member is affiliated with or employed in a professional capacity by AAM’s independent auditor;
the director or any of his or her immediate family members has been part of an “interlocking directorate”‘ in which an executive officer of AAM serves on the reverse side. If you do not make a choice, this proxy will be voted forcompensation committee of another company that employs the director nominees in Proposal 1, for the approval of the Amended and Restated American Axle & Manufacturing Holdings, Inc 2012 Omnibus Incentive Plan in Proposal 2, for the approval, on an advisory basis, of the compensation of our named executive officers in Proposal 3, "1 year" for the frequency of future advisory votes on executive compensation in Proposal 4 and for ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm in Proposal 5.
Voting over the Internet or by telephone reduces costs to AAM. If you vote over the Internet or by telephone, please do not mail this card.
(Items to be voted appear on reverse side.)director;
the director is an executive officer or employee, or an immediate family member is an executive officer, of a company that makes payments to, or receives payments from, AAM for property or services in any single fiscal year, exceeding the greater of two percent (2%) of the annual consolidated gross revenue of that company or $1 million; or
the director is an executive officer of a charitable organization that has received contributions from AAM in any single fiscal year of more than $1 million or two percent (2%) of the charitable organization’s consolidated gross revenues, whichever is greater.
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| (1) | AAM includes American Axle & Manufacturing Holdings, Inc. and all of its direct and indirect subsidiaries. |
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| (2) | Immediate family member includes spouse, parents, stepparents, children, stepchildren, siblings, mothers and fathers-in-law, sons and daughters-in-law and brothers and sisters-in-law and anyone (other than tenants or employees) who share the director’s home. Immediate family member shall be defined in accordance with NYSE listing standards in effect at the time of any independence determination by the Board. |
