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David C. Dauch Chairman of the Board and Chief Executive Officer |
James A. McCaslin Lead Independent Director |
Notice of Annual Meeting |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS |
Date Thursday, May | Time 8:00 a.m. Eastern Time | Where www.meetnow.global/MHYVYWS | ||||||
Your opinion is very important | Record Date | |||||||
Please vote on the matters described in the | You may vote if you owned shares on March | |||||||
Annual Meeting Agenda / Items of Business | ||
1. Election of | ||
2. Advisory vote on named executive officer compensation | ||
3. | ||
4. Ratification of the appointment of Deloitte & Touche LLP as independent public accounting firm for | ||
5. Other business properly presented at the meeting | ||
By Internet | By Telephone | By Mail | During Meeting | |||||||||||||||||
Go to www.envisionreports.com/axl and follow the instructions. You will need the control number on your proxy card or voter instruction form. | Call the number shown on your proxy card or voter instruction form. You will need the control number on your proxy card or voting instruction form. | Complete, sign and date the proxy card or voting instruction form and return it in the envelope provided. | Vote electronically at the meeting. See page | |||||||||||||||||
Important Notice Regarding the Availability of Proxy Materials for the May | ||
Proxy Summary |
Your Vote is Important |
Votes Required | Board Vote Recommendation | More Information | ||||||||||||
Proposal 1 | Election of | Majority of votes cast | FOR each nominee | Page | ||||||||||
Each nominee brings a strong background and set of skills to the Board and has demonstrated sound judgment and integrity. | ||||||||||||||
Proposal 2 | Advisory vote on named executive officer compensation | Majority of votes cast | FOR | Page | ||||||||||
AAM's executive compensation program is market-based, | ||||||||||||||
Proposal 3 | Majority of votes cast | FOR | Page | |||||||||||
Proposal 4 | Ratification of the appointment of Deloitte & Touche LLP as independent public accounting firm for the year ending December 31, | Majority of votes cast | FOR | Page | ||||||||||
All independence standards have been met and sound practices are employed to ensure independent financial governance. |
By Internet | By Telephone | By Mail | During Meeting | |||||||||||||||||
Go to www.envisionreports.com/axl and follow the instructions. You will need the control number on your proxy card or voter instruction form. | Call the number shown on your proxy card or voter instruction form. You will need the control number on your proxy card or voting instruction form. | Complete, sign and date the proxy card or voting instruction form and return it in the envelope provided. | Vote electronically at the meeting. See page | |||||||||||||||||
Proxy Summary |
Governance Highlights |
Independence | Accountability | |||||||
–9 of 10 directors are independent –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 –Proxy access by-laws –Majority vote for directors in uncontested elections –Candid Board and committee evaluation process –Commitment to Board refreshment |
– |
–Nominating/Corporate Governance Committee oversight of sustainability program and human capital management, including –Director –Stock ownership requirements for directors and executive officers –Hedging or pledging of 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 –AAM performs thorough risk assessments, including a recent climate risk scenario analysis, cybersecurity risk assessment and a product life cycle assessment |
Independence | Tenure | ||||
90% | 9 | ||||
Independent | Average Years of Service | ||||
Age | Diversity | ||||
66 | 30% | ||||
Average Age | 2 Women 1 Racial Minority |
Independence | Tenure | ||||
90% | 11 | ||||
Independent | Average Years of Service | ||||
Age | Diversity | ||||
68 | 30% | ||||
Average Age | 2 Women 1 Black |
Proxy Summary |
Business |
Sales | Adjusted EBITDA | ||||
$ | $ | ||||
12.9% of Sales | |||||
Cash Provided by Operating Activities | Reduced Total Debt by More Than | ||||
$449M | $150M | ||||
Proxy Summary |
electric vehicles | |||||||||||||||||||||||
Announced commitment to net zero carbon emissions by 2040 in Sustainability Report | Recognized as | ||||||||||||||||||||||
Named one of Forbes America's Best Large Employers | Continued strong free cash flow generation and debt reduction | ||||||||||||||||||||||
Proxy Summary |
Shareholder Engagement |
Investor Communication Program | Board Involvement | Annual Shareholder Outreach Program | ||||||||||||
–Senior management participation in conferences –One-on-one and group meetings – –Day-to-day interaction with Investor Relations | –Lead Independent Director/Compensation Committee Chair participates in outreach meetings –Board considers shareholder feedback and shareholder vote in decision-making –Board reviews disclosure enhancements | –Fall/Winter outreach seeking engagement with shareholders and occasionally with proxy advisory firms –Led by CFO and Investor Relations Department –Board and management discuss shareholder feedback and the Board's response |
Shareholder Engagement Topics | |||||||||||
þ | þ | ||||||||||
þ | Diversity, equity and inclusion initiatives | þ | Selection process for Board candidates | ||||||||
þ | Human capital management | þ | Board oversight of risk | ||||||||
þ | Board refreshment and diversity | þ | Separation of Chairman and CEO roles | ||||||||
þ | Shareholder rights | þ | Classified Board |
Proxy Summary |
Sustainability Program |
2023 AAM Proxy Statement | 7 | ||
Proxy Summary |
Structures executive compensation programs to drive performance aligned with our business strategy, including advancements in our Sustainability Program | Oversees product technology, with a focus on advancements in electrification, light-weighting and other key product technologies |
Reduce Energy Usage | Reduce GHG Emissions | Reduce Water Consumption | ||||||
5% | 5% | 5% | ||||||
MMBTUs/ Annual Revenues Intensity | Tons CO2 Emissions/ Annual Revenues Intensity | Mega-liters/ Annual Revenues Intensity | ||||||
Proxy Summary |
WOMEN | Global Goals | –Increase women representation to 25% in our global workforce –Increase women representation in our global leadership ranks to 25% | ||||||
U.S. Goal | –Increase women representation to 30% in our U.S. workforce | |||||||
BIPOC * | Global Goal | –Increase BIPOC representation in our global leadership ranks to 30% | ||||||
U.S. Goal | –Increase BIPOC representation in our U.S. workforce to 22% | |||||||
BLACKS | U.S. Goals | –Increase the representation of black associates in our workforce to 10% –Increase the representation of black salaried associates to 6% | ||||||
2023 AAM Proxy Statement | 9 | ||
Proxy Summary |
POWERING A GREENER FUTURE | SOCIAL POWERING AN INCLUSIVE FUTURE | ||||
–Achieved SBTi validation of emission goals –Improved CDP Climate Change score to A- from a C –Achieved Silver status on the EcoVadis sustainability assessment | –Named one of America's Best Large Employers by Forbes –Hired our first Director of Diversity, Equity and Inclusion –Improved on all safety performance metrics | ||||
PRODUCT POWERING A CLEANER FUTURE | SUPPLY CHAIN POWERING A COLLABORATIVE FUTURE | ||||
–Received three Automotive News PACE program awards –Launched 17 global product programs –Received eight quality performance awards | –Established a Supplier Sustainability Council –Updated the Supplier Requirements Manual –Increased our spend with diverse suppliers |
2023 AAM Proxy Statement | 10 | ||
Proxy Summary |
Improved CDP Climate score from C to an A- | Improved EcoVadis from a Bronze rating to a Silver rating | E4 Environmental Sustainability System |
Improved on all Safety Performance Metrics |
2023 AAM Proxy Statement | 11 | ||
Proxy Summary |
Compensation Highlights |
Supports Business Strategy | Market Competitive | Aligned with Shareholder Interests | ||||||
– –Rigorous performance goals as key drivers of enterprise value creation –88% of CEO compensation is variable and at risk – | –Attract and retain executive talent –Benchmark pay against a peer group of similarly sized companies –Target direct compensation –Incentive | –Mix of annual and long-term incentive balances focus between short-term results and long-term share appreciation –Significant portion of LTI compensation is paid in shares and performance-based – –Stock ownership requirements | ||||||
2023 AAM Proxy Statement | 12 | ||
Strategic Business Objective | Alignment | Incentive Metric | ||||||
Continue to strengthen the balance sheet; provide funding for organic growth, research & development, and other capital priorities; reduce leverage | Operational Cash Flow – (40% metric) | |||||||
Develop innovative technology, including electrification, and reinvest in research and development | ||||||||
– (100% metric of | ||||||||
Strategic Goals – | ||||||||
Drive productivity and financial performance | EBITDA Margin –2022 Annual Incentive Program (40%) | |||||||
Achieve | ESG/Sustainability Goals –2022 Annual Incentive Program (10%) | |||||||
Create sustainable value for shareholders and align with | Relative TSR –2022 LTI Performance Awards (modifier -15% or +15%) |
Reasonable Dilution | Average 3-year Burn Rate | ||||
10% | 2% | ||||
Election of Directors |
Proposal 1: Election of Directors |
þ | The Board unanimously recommends a vote FOR each of the nominees. |
Election of Directors |
James A. McCaslin | Retired President & Chief Operating Officer, Harley-Davidson Motor Co. | |||||||
Past Positions | Key Qualifications and Experience | |||||||
Positions at Harley-Davidson (Retired 2010): President & Chief Operating Officer 2001 - 2009 Various senior executive positions 1992 - 2001 Other Manufacturing Company Positions: Manufacturing and Engineering executive JI Case (agricultural equipment) 1989 - 1992 Manufacturing and Quality executive Chrysler Corporation Volkswagen of America General Motors Corporation 1966 - 1989 | Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. McCaslin should serve on AAM's Board: his leadership experience as President & COO of Harley-Davidson Motor Company; the breadth of his manufacturing and engineering experience at global manufacturing companies; and his subject matter knowledge in the areas of engineering, innovation and technology, manufacturing, human capital management and risk management. | |||||||
Age: 74 | ||||||||
Director Since: 2011 | Previous Public Company Directorship | |||||||
Lead Independent Director | Maytag Corporation 2003 - 2006 | |||||||
Committees: | ||||||||
Audit | ||||||||
Compensation (Chair) | ||||||||
Nominating/Corp Gov | ||||||||
Technology | ||||||||
Executive | ||||||||
Election of Directors |
William P. Miller II CFA | Senior Managing Director - Capital Markets, Investments & Governance Financial Markets International, Inc. | |||||||
Current and Past Positions | Key Qualifications and Experience | |||||||
Senior Managing Director - Capital Markets, Investments & Governance since 2020 Senior Managing Director & CFO 2011 - 2013 Financial Markets International, Inc. Chief Financial Officer 2019 - September 2020 Head of Asset Allocation 2013 - 2019 Saudi Arabian Investment Company Deputy Chief Investment Officer Ohio Public Employees Retirement System 2005 - 2011 Senior Risk Manager Abu Dhabi Investment Authority 2003 - 2005 Independent Risk Oversight Officer & Chief Compliance Officer Commonfund Group 1996 - 2002 | Based on his professional background and prior AAM Board and Audit Committee experience, the following qualifications led the Board to conclude that Mr. Miller should serve on AAM's Board: his leadership qualities developed from his experience as Head of Asset Allocation and Chief Financial Officer for the Saudi Arabian Investment Company and as an officer with oversight responsibilities for investments, risk and compliance since 1996; the breadth of his experience in serving on the boards of the Chicago Mercantile Exchange and the Dubai Mercantile Exchange; and his subject matter knowledge in the areas of finance, investments, audit and accounting, innovation and technology, regulatory matters, human capital management and risk management. | |||||||
Age: 67 | ||||||||
Director Since: 2005 | Directorship (not-for-profit) | |||||||
Committees: | –Wayne County (Ohio) Humane Society –Business Advisory Council College of Business & Economics Ashland University | |||||||
Audit (Chair) | Previous Directorships | |||||||
Technology | Chicago Mercantile Exchange 2003 - 2017 Dubai Mercantile Exchange 2011 - 2017 |
Sandra E. Pierce | Senior Executive Vice President, Huntington Bank | |||||||
Current and Past Positions | Key Qualifications and Experience | |||||||
Chair, Huntington Bank Michigan and Sr. Vice President, Private Client Group & Regional Banking Director since August 2016 Vice Chair, First Merit Corporation and Chair and Chief Executive Officer, First Merit Michigan (acquired by Huntington Bank) 2013 - 2016 President and Chief Executive Officer, Charter One, Midwest Regional Executive (RBS Citizens, N.A.) 2005 - 2012 Various banking and executive positions with increasing responsibility with JPMorgan Chase, Michigan (successor to Bank One, First Chicago NBD and NBD Bank, N.A.) 1978 - 2005 | Based on her professional background and public company board experience, the following qualifications led the Board to conclude that Ms. Pierce should serve on AAM’s Board: her leadership experience as Senior Executive Vice President - Private Client Group & Regional Banking Director, and Chair of Huntington Bank Michigan, and as chief executive officer of FirstMerit Michigan and Charter One; the breadth of her corporate marketing and community development experience in her professional, civic and charitable endeavors; and her subject matter knowledge in the areas of strategic planning, finance, public relations, business development, human capital management and risk management. | |||||||
Directorships (not-for-profit) | ||||||||
–Downtown Detroit Partnership –Business Leaders for Michigan, Vice-Chair –Detroit Economic Club –Detroit Regional Chamber –Henry Ford Health System Foundation –The Parade Company –Wayne State University Foundation | ||||||||
Age: 64 | Other Public Company Directorship | |||||||
Director Since: 2018 | Penske Automotive Group since 2012 | |||||||
Committees: | Private Company Directorships | |||||||
Audit | Barton Malow Company since January 2013 ITC Holding Corp (subsidiary of Fortis, Inc.) since January 2017 | |||||||
Compensation | ||||||||
Election of Directors |
David C. Dauch | Chairman of the Board & Chief Executive Officer, AAM | |||||||
Current and Past Positions at AAM | Key Qualifications and Experience | |||||||
Chairman of the Board since August 2013 Chief Executive Officer since September 2012 President & Chief Executive Officer September 2012 - August 2015 President & Chief Operating Officer 2008 - 2012 Various positions of increasing responsibility 1995 - 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, human capital management and risk management. | |||||||
Directorships (not-for-profit) and Leadership Roles | ||||||||
Age: | Other Company | Directorships | ||||||
–Business Leaders for Michigan –Detroit Economic Club –Detroit Regional CEO Council, Regional Chamber and Regional Partnership –Great Lakes Council Boy Scouts of America –Boys & Girls Club of Southeastern Michigan –National Association of Manufacturers (NAM) – –General Motors Supplier Council – –Michigan ESG Leadership Council | ||||||||
Director Since: 2013 (Chairman) 2009 | Amerisure Companies since 2014 | |||||||
Previous Directorship | ||||||||
Horizon Global Corporation 2015 - 2018 | ||||||||
Committees: | ||||||||
Executive (Chairman) | ||||||||
Previous Directorships (not-for-profit) | ||||||||
–Original Equipment Suppliers Association (OESA) –FCA NAFTA Supplier Advisory Council |
Election of Directors |
William L. Kozyra | ||||||||
Current and Past Positions (BF) | Key Qualifications and Experience | |||||||
Chairman & Chief Executive Officer Alco Plastics, Inc. since 2022 President & Chief Executive Officer TI Fluid Systems plc (TI Automotive) (fluid storage, carrying and delivery systems) 2008 - December 2021 President & Chief Executive Officer Continental AG North America 1998 - 2008 Member of Executive Board Continental AG (DAX) 2006 - 2008 Vice President & General Manager Brake 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 | |||||||
Age: | Directorships (not-for-profit) and Leadership Roles | |||||||
Director Since: 2015 | ||||||||
Committees: | TI Fluid Systems plc (TI Automotive) 2008 - December 2021 | –General Motors Supplier Council –Ford Motor Company Top 100 Supplier Forum –Notre Dame Preparatory School –Automotive Hall of Fame –Boy Scouts of America, Detroit –University of Detroit Alumni Council –Society of Automotive Engineers | ||||||
Compensation | ||||||||
Nominating/Corp Gov | ||||||||
Technology | ||||||||
Peter D. Lyons | ||||||||
Current | Key Qualifications and Experience | |||||||
Counsel (since 2021) Partner (2014 - 2021) Freshfields Bruckhaus Deringer US LLP New York, NY since September 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 major law firms since | |||||||
Age: | ||||||||
Director Since: 2015 | ||||||||
Committees: | ||||||||
Compensation | ||||||||
Nominating/Corp Gov |
Election of Directors |
Samuel Valenti III | Chairman & Chief Executive Officer, Valenti Capital LLC | |||||||
Current and Past Positions | Key Qualifications and Experience | |||||||
–Chairman & Chief Executive Officer Valenti Capital LLC Positions at Masco Corporation (1968 - 2008) –President, Masco Capital Corporation 1988 - 2008 –Vice President - Investments General Motors Corporation 1966 - | Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. | |||||||
Age: | ||||||||
Director Since: 2011 | Previous Public Company Directorship | |||||||
Lead Independent Director | 2003 - 2006 | |||||||
Committees: | ||||||||
Audit | ||||||||
Compensation (Chair) | ||||||||
Nominating/Corp Gov | ||||||||
Technology | ||||||||
Executive | ||||||||
Election of Directors |
Financial Markets International, Inc. | ||||||||
Current and Past Positions | Key Qualifications and Experience | |||||||
Senior Managing Director - Capital Markets, Investments & Governance since 2020 Senior Managing Director & CFO 2011 - 2013 Financial Markets International, Inc. Chief Financial Officer 2019 - September 2020 Head of Asset Allocation 2013 - 2019 Saudi Arabian Investment Company Deputy Chief Investment Officer Ohio Public Employees Retirement System 2005 - 2011 Senior Risk Manager Abu Dhabi Investment Authority 2003 - 2005 Independent Risk Oversight Officer & Chief Compliance Officer Commonfund Group 1996 - 2002 | Based on his professional background and prior AAM Board and Audit Committee experience, the following qualifications led the Board to conclude that Mr. Miller should serve on AAM's Board: his leadership qualities developed from his experience as Head of Asset Allocation and Chief Financial Officer for the Saudi Arabian Investment Company and as an officer with oversight responsibilities for investments, risk and compliance since 1996; the breadth of his experience in serving on the boards of the Chicago Mercantile Exchange and the Dubai Mercantile Exchange; and his subject matter knowledge in the areas of finance, investments, audit and accounting, innovation and technology, regulatory matters, human capital management and risk management. | |||||||
Director Since: 2005 | Directorship (not-for-profit) | |||||||
Committees: | –Wayne County (Ohio) Humane Society College of Business & Economics | |||||||
Audit (Chair) | Previous Directorships | |||||||
Technology | Chicago Mercantile Exchange 2003 - 2017 Dubai Mercantile Exchange 2011 - 2017 |
Sandra E. Pierce | Senior Executive Vice President, | |||||||
Current and Past Positions | Key Qualifications and Experience | |||||||
Chair, Huntington Bank Michigan and Sr. Vice President, Private Client Group & Vice Chair, First Merit Corporation 2016 JPMorgan Chase, Michigan (successor to Bank One, First Chicago NBD and NBD Bank, N.A.) 1978 - 2005President and Chief Executive Officer, Charter One, Midwest Regional Executive (RBS Citizens, N.A.) 2005 - 2012 Various banking and executive positions with increasing responsibility with | Based on her professional background and | |||||||
Directorships (not-for-profit) | ||||||||
–Business Leaders for Michigan, Vice-Chair –Detroit Economic Club –Detroit – – –Wayne State University | ||||||||
Age: 64 | Other Public Company Directorship | |||||||
Director Since: | ||||||||
Committees: | Private Company Directorships | |||||||
Barton Malow Company since January 2013 ITC Holding Corp since January 2017 | ||||||||
Election of Directors |
Current and Past Positions at AAM | Key Qualifications and Experience | |||||||
Chairman of the Board since August 2013 Chief Executive since September 2012 President September 2012 - President 2008 - 2012 Various 1995 - | ||||||||
Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. | ||||||||
Directorships (not-for-profit) and Leadership Roles | ||||||||
Age:58 | Other Company Directorships | –Business Leaders for Michigan –Detroit Economic Club –Detroit Regional CEO Council, Regional Chamber and Regional Partnership –Great Lakes Council Boy Scouts of America –Boys & Girls Club of Southeastern Michigan –National Association of Manufacturers (NAM) –Miami University Business Advisory Council –General Motors Supplier Council –Detroit Mayor's Workforce Development Board –Michigan ESG Leadership Council | ||||||
Director Since: 2013 (Chairman) 2009 | ||||||||
2015 - 2018 | ||||||||
Executive (Chairman) | ||||||||
Previous Directorships (not-for-profit) | ||||||||
–Original Equipment Suppliers Association (OESA) –FCA NAFTA Supplier Advisory Council |
Election of Directors |
Current and Past Positions (BF) | Key Qualifications and Experience | |||||||
Chairman & Chief Executive Officer Alco Plastics, Inc. since 2022 President & Chief TI Fluid Systems plc (TI Automotive) (fluid storage, carrying and delivery systems) 2008 - December 2021 President & Chief Executive Officer Continental AG North America 1998 - 2008 Member of Executive Board Continental AG (DAX) 2006 - 2008 Vice President & General Manager Brake 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 Chief Executive Officer of TI Fluid Systems plc; the breadth of his international experience with global companies in the automotive industry; and his subject matter knowledge in the areas of engineering, OEMs, manufacturing, innovation and technology, strategic planning, human capital management and risk management. | |||||||
Age:65 | Former Public Company Directorship | Directorships (not-for-profit) and Leadership Roles | ||||||
Director Since: 2015 | ||||||||
Committees: | TI Fluid Systems plc (TI Automotive) 2008 - December 2021 | –General Motors Supplier Council –Notre Dame Preparatory School –Automotive Hall of Fame –Boy Scouts of America, Detroit –University of Detroit Alumni Council –Society of Automotive Engineers | ||||||
Compensation | ||||||||
Nominating/Corp Gov | ||||||||
Technology | ||||||||
Peter D. Lyons | Counsel, Freshfields Bruckhaus Deringer US LLP | |||||||
Current and former Positions | Key Qualifications and Experience | |||||||
Counsel (since 2021) Partner (2014 - Freshfields Bruckhaus Deringer US LLP | 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 major law firms since 1980; 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, human capital management and risk management. | |||||||
Age: 67 | ||||||||
Director Since: 2015 | ||||||||
Committees: | ||||||||
Compensation | ||||||||
Nominating/Corp Gov |
Election of Directors |
Samuel Valenti III | Chairman & Chief Executive Officer, Valenti Capital LLC | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current and Past Positions | Key Qualifications and Experience | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
–Chairman & Chief Executive Officer Valenti Capital LLC since 2000 Positions at Masco Corporation (1968 - 1988 - 2008
Board Responsiveness to Shareholder Feedback As part of our annual shareholder outreach program, we contacted more than 25 of our largest shareholders representing approximately 72% of outstanding shares. Our CFO and Investor Relations Director led this engagement and discussed the topics described below. Our CFO reported shareholder feedback to the Board for consideration in its decision making.
Based on To enhance director skills and Board effectiveness, the Board held a special session to focus on | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
are critical to advancing AAM's business strategy. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Proxy Summary |
Sustainability Program |
2023 AAM Proxy Statement | 7 | ||||||||
Board Engagement and Leadership Commitment to DEI Board oversight and the ongoing commitment of our leadership team reflects the importance of our DEI journey and the power of accountability to this critical initiative. The Board reviewed and approved our DEI strategic roadmap, DEI pillars and the 2030 metrics of our Global DEI Program. AAM places a priority on building a safe, welcoming and inclusive culture. We continue to advance our programs and our path forward is laid out in the pillars of our comprehensive DEI Strategic Roadmap. We have developed action plans for each pillar and will continue to monitor the results of our work as we strive to continuously improve.
2030 Demographic Goals To drive accountability in our global DEI program, AAM leadership set meaningful DEI goals for 2030, using 2020 as a baseline. Three goals apply to the global workforce and four goals apply to associates in the United States. After receiving Board approval, management communicated the 2030 DEI goals to the global workforce.
*BIPOC = Black, Indigenous and People of Color Global 2+1 DEI Program We launched our Global 2+1 DEI Program as part of our DEI journey. Two global DEI topics in 2022 were (1) understanding and valuing differences and (2) improving the representation of women in our global workforce. AAM facilities chose one more topic (+1) that would drive their DEI journey. Having facilities choose their own +1 topics encourages engagement and makes participation more meaningful in different regions of the world.
2022 Sustainability Achievements
ENVIRONMENTAL GOALS
ENVIRONMENTAL: Improved scores and ratings
SOCIAL: Prioritized the value of our associates and their safety
PRODUCT: Winner of three PACE awards – a record number for AAM SUPPLY CHAIN: Participated in Sustainability Partnership Programs
Executive Compensation Philosophy AAM is committed to a compensation philosophy that supports our business strategy and performance, aligns with shareholder interests and pays competitively.
The foundation of our compensation 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. Pay for Performance Alignment 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 our CEO's and other NEOs' compensation is performance based and is at risk.
Compensation Program Metrics Link to Strategic Business Objectives The following chart demonstrates how our incentive compensation metrics correlate to our strategic business objectives.
New for 2022: In response to shareholder feedback, the Compensation Committee updated the design of the AAM Incentive Compensation Program for Executive Officers to create a standalone component allocated to ESG/sustainability performance. For 2022, 10% of the annual incentive opportunity for executive officers is directly linked to achievements related to key ESG/sustainability objectives. To further drive sustainability performance throughout the organization, the Company also added a sustainability element to its 2022 annual incentive program for salaried associates worldwide.
Election of Directors
The Board proposes that James A. McCaslin, William P. Miller II and Sandra E. Pierce be re-elected to the Board as Class III directors for terms expiring at the annual meeting in 2026. 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. The Board unanimously approved the nominations of Mr. McCaslin, Mr. Miller and Ms. Pierce based on their demonstrated effectiveness as members of our Board and the committees on which they serve, their experience and expertise, and their sound judgment and integrity. Each nominee brings a strong and unique background and set of skills to the Board. Collectively, the Board has
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Nominees for Director Class III — Directors to hold office until the 2026 Annual Meeting of Stockholders
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Board Oversight of Risk Management The Board believes that strong and effective internal controls and risk management processes are essential for achieving shareholder value. The Board has oversight for risk management with a focus on the most significant risks facing the Company, 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. The 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. 26
27 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 character, integrity and qualifications of its members, and on the Board's leadership structure and composition. The Nominating/Corporate Governance Committee reviews with 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: –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; –special competencies, 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 a balance of knowledge, experience, skills, expertise and diversity that, when taken together, will enhance the quality of the Board’s deliberations and decisions. Consistent with this philosophy, the Board adopted a policy to include in each director search qualified candidates who reflect diverse backgrounds, including diversity of gender and race. 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 Mr. McCaslin, Mr. Miller and Ms. Pierce for re-election as Class II directors, each with a term expiring on the date of the 2026 annual meeting of stockholders. For Ms. Pierce, the Board considered the representation of women she brings to the Board. Board composition 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. 28 Director Qualifications, Skills and Experience 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. The Board's composition should reflect a balance of knowledge, experience, skills and diversity that will enhance the quality of the Board's deliberations and decision-making. As AAM continues to advance its Sustainability Program as a strategic objective, the Board's oversight of sustainability-related matters has increased significantly. To ensure alignment of the Board's capabilities with a greater focus on the Company's DEI strategy roadmap and similar initiatives, directors were asked to identify their qualifications in the area of human capital management. All directors possess relevant knowledge and experience in this area. Board Skills and Qualifications Board Composition
Communicating with the Board Our Board and management team value the opinions and feedback of our shareholders, and we engage with stockholders throughout the year on a variety of issues, including our executive compensation program and corporate governance. Shareholders 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). Shareholders 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 instruct the Secretary to forward any communication received by the Secretary on behalf of the Board. 29 Corporate Governance and Sustainability Policies Because we believe corporate governance is integral to creating long-term shareholder value, our Board has adopted company-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 our website at aam.com/investors/governance to learn more about our corporate governance practices and to access the following materials: –Corporate Governance Guidelines –Code of Ethics for the CEO, CFO and other Senior Financial Executives (Code of Ethics) –Charters of our Board Committees –Code of Business Conduct A written copy of our Code of Business Conduct and Code of Ethics 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. Our 2022 Sustainability Report will be available on our website in April 2023. Please visit aam.com/sustainability to access our Sustainability Report and related policies, including those listed below. – Environmental Policy –Human Rights Policy –Safety Policy –Conflict Minerals Policy Statement –Supplier Requirements Manual –Anti-Corruption Policy –Conflict of Interest Policy 30
The Compensation Committee has authority to develop and recommend to the full Board non-employee director compensation policies and programs. The Committee retains Meridian Compensation Partners LLC (Meridian) to advise when setting non-employee director compensation to ensure it is market-based and aligned with shareholder interests. AAM's compensation program for our non-employee directors is designed to meet the following objectives: –recognize the significant investment of time and expertise required of directors; –align the directors' interests with the long-term interests of our shareholders; and –ensure that the compensation of directors is well received by our shareholders. 2022 Annual Retainer and Committee Chair Retainers
2022 Board Compensation and Annual Equity Grant In 2021, based on a Meridian market benchmark analysis that compared our Board compensation to that of our comparative peer group, the Board approved an increase of $5,000 to each of the Committee chairs and the Lead Independent Director annual retainers effective January 1, 2022. In order to further align Board compensation levels with the market median of our peer group, the Board also approved an increase in the annual equity grant value to $135,000 effective January 1, 2022. This was the first increase in Board compensation since 2017. Non-employee directors serving on the Board on the date of the 2022 annual meeting received a grant of 19,095 restricted stock units (RSUs) with a grant date value of $135,000. 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 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. For purposes of meeting these guidelines, shares owned directly, deferred RSUs and unvested RSUs are counted. 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. 31
Director Compensation Table Total 2022 compensation of our non-employee directors is shown below.
(1)Fees earned in 2022 for annual, committee chair and lead director retainers. (2)Reflects the full grant date fair value of RSUs granted on May 5, 2022 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 ($7.07). See Note 8 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2022 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 associates with these meetings. The Company pays for spousal travel and certain other expenses and reimburses non-employee directors for taxes attributable to the income associates with this benefit. Amounts reflect reimbursement of taxes on this income. As of December 31, 2022, each non-employee director had the number of outstanding RSUs (including those deferred) shown below.
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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; –each of our non-employee directors as of March 9, 2023; –each of the named executive officers shown in the Summary Compensation Table; and –all directors and executive officers as a group as of March 9, 2023. 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 116,814,929 shares of AAM common stock outstanding on March 9, 2023 (record date).
(*) Less than 1% of the outstanding shares of AAM common stock. (1)Based on the Schedule amended 13G filed on January 26, 2023 by Blackrock, Inc., reporting sole voting power over 18,340,651 shares and sole investment power over 18,593,723 shares. (2)Based on the Schedule 13G filed on February 9, 2023 by The Vanguard Group, reporting sole investment power over 14,374,257, shared voting power over 182,686 shares and shared investment power over 295,650 shares. (3)Based on the Schedule 13G filed on February 10, 2023 by Dimensional Fund Advisors LP reporting sole voting power over 5,818,245 shares and sole investment power over 5,973,542 shares. (4)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. (5)For Mr. Dauch, amount includes 548 shares held in trusts for the benefit of his children and, for Mr. Lynch, amount includes 1,000 shares held in his spouse's trust. 33
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. 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. In 2022, the Audit Committee ratified a transaction involving David C. Dauch and Century, LLC, a supplier of specialty metal products and heat treating to AAM. In September 2021, Mr. Dauch and certain members of his family made investments in Century, LLC. Mr Dauch and his brother each serve on the company's board. During 2022, Century, LLC received $674,485 in payments from AAM for ordinary course supply of products and services on terms no less favorable to AAM than terms generally available to an unaffiliated third party under the same or similar circumstances. The Committee concluded that this transaction is not inconsistent with AAM's Code of Business Conduct or the Code of Ethics for the CEO, CFO and other Senior Financial Officers. Mr. Dauch's son, Zachary Dauch, is Director, Product Management at AAM. Zachary Dauch earned $236,400 in base salary and annual bonus for 2022. Norman Willemse's daughter, Samantha Thoma, is Manager, AAM Cost System. Ms. Thoma earned $120,078 in base salary and annual bonus for 2022. Mr. Willemse's son-in-law, Grant Acheson, is Manager, Factory Floor Business Systems and earned $141,300 in base salary and annual bonus for 2022. There is no direct reporting relationship between Mr. Dauch and his son or between Mr. Willemse and his daughter or son-in-law. 34
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). Pay for Performance Philosophy AAM is committed to a 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 portion of CEO and other NEO compensation is performance-based and at risk. Our incentive programs utilize both short- and long-term financial metrics that are aligned with our strategic business objectives. The Compensation Committee annually reviews performance metrics, targets and payouts to ensure they are challenging, stretch goals that drive performance of our long-range plan and also mitigate risk. Shareholder Engagement Our Board and management team greatly value the opinions and feedback of our shareholders, which is why we proactively engage with our shareholders on key topics such as corporate governance, executive compensation and sustainability. During outreach, our shareholders expressed support of our overall executive compensation program. Although your vote on this proposal is advisory and non-binding, the Board and the Compensation Committee will consider the voting results when making future compensation decisions.
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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 program, the Compensation Committee (Committee) strives to align the incentives of our named executive officers (NEOs) with the interests of our shareholders and other stakeholders by using performance metrics and challenging goals that support our business strategy and 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 2022. Our NEOs for the fiscal year ending December 31, 2022, and the positions they held as of December 31, 2022, are shown below.
During 2022 and continuing in 2023, the Board made organizational changes as part of the succession plan for our executive leadership team. Recent changes affecting our NEOs are described below. –Effective January 1, 2023, Mr. May was appointed Executive Vice President & Chief Financial Officer. –Effective March 17, 2023, Mr. Willemse retired from AAM. –Effective March 24, 2023, Mr. Simonte will retire from AAM. –Effective March 25, 2023, Mr. Lynch will become President & Chief Operating Officer. 36
2022 Financial and Performance Highlights AAM concluded 2022 with strong cash flow performance while successfully navigating customer production schedule volatility stemming from ongoing supply chain challenges and recession-level light vehicle industry sales in the U.S. We continue to adapt to difficult market conditions by relying on our culture of innovation and operational excellence. Despite elevated costs, labor shortages, and supply chain issues, we continued to ensure continuity of supply with consistent on-time delivery and exceptional quality while delivering positive operating performance and meaningful cash flow results.
Actual amounts shown above do not reflect all adjustments made to determine incentive payments. See Non-GAAP Reconciliation in Appendix A and discussion of incentive payouts below. In 2022, AAM continued to generate strong adjusted free cash flow, resulting in debt reduction and well-positioned liquidity. We maintained discipline in managing capital expenditures at historically low levels while continuing to secure and grow our core business, optimize our operations and advance our electrification product portfolio to drive future growth and position AAM as an electric propulsion supplier of choice. 2022 Highlights
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Executive Compensation Highlights AAM is committed to engaging in constructive and meaningful communications with our shareholders. We received a favorable vote of 92% for our say-on-pay proposal in 2022. This level of support is consistent with the say-on-pay vote we received over the past five years, which has ranged from 92% to 97%. These consistently favorable results demonstrate strong shareholder support of our overall executive compensation program and the alignment of our incentive compensation goals with the Company's overall business strategy. Compensation Program Metrics Link to Strategic Business Objectives The following chart shows the alignment between our business strategy and incentive compensation metrics.
New for 2022: In response to shareholder feedback, the Committee updated the design of the AAM Incentive Compensation Program for Executive Officers to create a standalone component allocated to ESG/sustainability performance. For 2022, 10% of the annual incentive opportunity for executive officers is directly linked to achievements related to key ESG priorities. To further drive sustainability performance throughout the organization, the Company added a sustainability element to the 2022 annual incentive program for salaried associates worldwide. 38
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. The following chart illustrates the allocation of 2022 total direct compensation components at target for our CEO and for our other NEOs (average) as a group as of December 31, 2022. This analysis highlights the Company's emphasis on long-term and at-risk compensation. 39
Executive Compensation Philosophy AAM is committed to a compensation philosophy that supports our business strategy and performance, aligns with shareholder interests and pays competitively.
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 Compensation Program The primary components of AAM’s 2022 executive compensation program are summarized below.
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Decision-Making Process Comprised solely of independent, non-employee directors, the Committee oversees compensation and benefits programs for our executive officers, including the NEOs. In its oversight of our 2022 executive compensation program, the Committee worked with its independent compensation consultant, the CEO, President, Executive Vice President & CFO and Senior Vice President, Human Resources. The CEO and these officers provided information and recommendations regarding: –Company performance objectives and goals, which serve as a basis for incentive compensation; –attracting, retaining and motivating executive officers; –information regarding financial performance, budgets and forecasts; and –industry and market conditions affecting AAM's business strategy. Based on the Committee's recommendation, the Board exercises its judgment to approve the CEO's compensation. In setting compensation levels for other executive officers, the Committee considers the CEO's recommendations. Compensation of the CEO and executive officers is aligned with the Company's compensation philosophy. The Committee makes pay decisions based on market practice, financial performance and other factors, such as individual performance and experience, scope and responsibility of position, retention and internal pay equity. 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 competitive market data, peer group analyses and updates on compensation trends and regulatory developments. Meridian also works with the Company in evaluating its incentive programs and the selection of performance measures. Meridian communicates with the Chair of the Committee 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. 41
Peer Group and Market Analysis The Committee annually reviews the composition of our comparative peer 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. Peer companies are selected primarily based on the following criteria: –total revenue and market capitalization; –competitors in industry segment; –complexity of global business and operations; and –competition for talent and investor capital. The Committee changed the comparative peer group to benchmark executive 2022 compensation as shown in the chart below.
AAM's revenues are slightly below the median of the peer group. The Committee believes our comparative peer group remains aligned with the size and complexity of our business, competitors in our industry segment and competition for talent and investor capital. This peer group enables the Committee to effectively evaluate our compensation programs. 42
2022 Changes to Executive Officer Compensation CEO Compensation In November 2021, the Committee approved adjustments to Mr. Dauch’s compensation effective January 1, 2022. For the first time in eight years, Mr. Dauch received an increase in base salary. Set at $1,250,000, his base salary increased by approximately 9%. Mr. Dauch also received an increase in his target annual incentive opportunity to 150% of base salary and an increase in his target long-term incentive opportunity to 575% of base salary. Also in 2022, Mr. Dauch received an annual perquisite allowance of $50,000 instead of the Company covering costs of certain perquisites. The table below shows these adjustments.
The Committee emphasized the importance of performance-based compensation by increasing Mr. Dauch’s target annual and long-term incentive opportunities, which are both at-risk and conditioned on performance achievements. In determining these adjustments, the Committee considered numerous factors, including pay levels of CEOs at key competitors and its desire to retain Mr. Dauch, considering his extensive industry experience, leadership capabilities and vision. The Committee views Mr. Dauch as a strong, seasoned CEO who has navigated AAM through challenging times and has delivered outstanding operational and financial performance over the last several years compared to the Company's immediate peers. The Committee recognizes that the level of talent required as CEO is in high demand, especially as the automotive industry transforms and new entrants seek proven talent to lead them in achieving their goals. Replacing leadership talent in the current competitive market remains difficult. The Committee believes Mr. Dauch provides stability to AAM and can continue to drive growth and diversification and provide innovative technology leadership focused on electrification, lightweighting, efficiency and performance that will provide value to our shareholders. Other NEO Compensation Effective January 1, 2022, the Committee approved an increase in base salary for Mr. May of approximately 12% to $615,000. This adjustment was made to better align Mr. May’s total compensation to the 50th percentile of our comparative peer group and to acknowledge his continued dedicated service to AAM. On December 1, 2022, Mr. Lynch was appointed Chief Operating Officer. In connection with the increase in responsibilities of his new position, the Committee approved adjustments to Mr. Lynch's compensation. These adjustments consisted of an increase in base salary of approximately 23% to $675,000, an increase in Mr. Lynch's target annual incentive opportunity to 100% of base salary and an increase in his target long-term incentive opportunity to 250% of base salary. The direct compensation elements of our NEOs are discussed in further detail below. 43
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 position, succession planning, internal pay equity and market demand for talent in key positions. The Committee also considers each NEO's current base salary as compared to the salary range and median salary practices of our peer group.
Incentive Compensation Annual Incentive Compensation Each NEO's annual incentive compensation is based on achieved results against financial and strategic targets approved by the Committee under the AAM Incentive Compensation Program for Executive Officers. Payment of annual cash incentive awards is permitted to the extent the Company meets or exceeds threshold performance levels. In setting the 2022 annual incentive program performance measures, the Committee considered the importance of balancing financial and strategic and sustainability objectives in achieving short-term financial targets and executing long-term strategy for value creation. The 2022 annual incentive awards are designed to drive operational performance and advance key strategic and ESG/sustainability initiatives. Financial Measures (80% of annual award) In February 2022, the Committee decided that 80% of the annual incentive award would be based on EBITDA margin and operational cash flow, each weighted 40%. EBITDA margin was selected to support our strategy of maintaining a flexible cost structure and protecting margins despite the impact of inflation, increased research and development spending and metal market cost recoveries. The EBITDA margin target exceeds the performance of a majority of our competitor peer group companies. Operational cash flow was selected to further focus management on our annual cash flow target achievement to reduce debt and on the capital intensity of our business profile. Achieving the operational cash flow target would require disciplined capital management and optimization. These financial targets are aligned with each other, and both targets were intended to drive superior performance. Strategic Objectives (10% of annual award) The Committee determined that 10% of the annual incentive program would be based solely on the achievement of strategic objectives that are designed to emphasize the importance of continuous effort and focus on our priorities that support AAM as a premier global Tier 1 automotive supplier including: –securing new business with a focus on hybrid and electrification applications; –encouraging a spirit of innovation to advance technology leadership and electrification; –continuing to strengthen the balance sheet; –achieving strategic initiatives that align with capital allocation priorities; –managing successful customer relationships for the long-term benefit AAM; and –advancing AAM's Operating System and supporting business systems for long-term competitive advantages. 44
ESG/Sustainability Objectives (10% of annual award) In response to shareholder feedback, the Committee decided to allocate 10% of the 2022 annual incentive program to the achievement of ESG/sustainability objectives. This design change directly aligns an incentive pay outcome with meaningful advancements in our Sustainability Program. The ESG/sustainability component was designed to emphasize the importance of the attainment of sustainability goals as described below. –Demonstrating progress on AAM's DEI strategy roadmap. –Supporting environmental sustainability performance initiatives, including climate-related actions and reporting. –Achieving environmental sustainability goals. –Meeting expectations of customers on ESG initiatives to maintain a competitive advantage in future business growth opportunities. –Demonstrating continuous improvement in AAM's Sustainability Report disclosures and positive recognition by shareholders and other stakeholders. –Introducing new supplier diversity initiatives with measurable goals. –Incorporating a sustainability element into salaried associate incentive compensation and performance evaluations. 2022 Award Payouts During 2022, the automotive industry experienced significant disruptions in the supply chain, including a shortage of semiconductor chips used by our customers, increased metal and commodity costs, higher utility costs, increases in transportation costs, higher labor costs and labor shortages. As a result, AAM experienced increased volatility in our production schedules, higher inventory levels and increased labor costs, all of which negatively impacted our results of operations and cash flows. Despite these challenges, we successfully managed factors we could control and delivered positive results in 2022 amid the lowest light vehicle sales in the United States that the industry has experienced in 11 years.
Financial Measures EBITDA margin and Operational Cash Flow (80% of annual award) In establishing the financial measures, the Committee challenged leadership to deliver results that are rigorous yet achievable considering the market challenges facing the Company and the industry. The Committee considered the projected adverse impact of non-controllable factors that were known at the time, including an estimated level of productive material cost inflation and metal market cost recoveries as well as ongoing supply chain constraints and semiconductor chip shortages affecting our customers. The Committee also considered the Board's expectation that AAM would continue to invest in research and development to support AAM's electrification strategy and continue to improve the balance sheet by reducing long-term debt. Based on these projections, the Committee set targets at levels that would require management to deliver superior performance and top-tier industry margins in 2022. As the year progressed, macroeconomic conditions worsened more than expected and the onset of the war in Ukraine resulted in further uncertainty and volatility, including in the availability of natural gas and other fuel and utility sources in some regions of the world. Consequently, the Company and the industry experienced significantly higher inflationary pressures and unforeseen increases in utility costs as supply chain constraints and volatile customer production schedules continued throughout the year. Despite these unanticipated events, the Committee made no adjustments in determining the award payout as permitted under the annual incentive program. 45
The targets and results of the financial performance incentive measures are shown below.
(1) Excludes restructuring and acquisition-related costs of $30.2 million, Malvern fire insurance recoveries, net of charges ($39.1), debt refinancing and redemption costs of $6.4 million, gain on bargain purchase of business ($13.6), unrealized loss on equity securities of $25.5 million and other adjustments of $5.0 million. For purposes of calculating performance under the annual incentive program, amounts also reflect adjustments related to the acquisition of Tekfor Group. See Non-GAAP Reconciliation in Appendix A. (2) Reflects % of Target Earned multiplied by each respective metric weighting of 40%. Despite external challenges, we continued to make investments in research and development and advance our electrification product portfolio to drive future growth and position AAM as an electric propulsion supplier of choice. In addition, the leadership team: –demonstrated the value of deep industry experience by adapting to difficult market conditions; –continued to instill a culture of innovation and operational excellence by ensuring continuity of supply with consistent on-time delivery and exceptional quality; and –controlled capital expenditures at record low levels. While navigating volatile market conditions, macroeconomic pressures and industry disruptions during 2022, we continued to deliver one of the highest EBITDA margins* among our competitor peer group. Competitor peer group average comprises ADNT, ALV, AXL, BWA, DAN, LEA and MGA. *Actual amounts shown above do not reflect all adjustments made to determine incentive payments. See Non-GAAP Reconciliation in Appendix A. To deliver performance at this level, the leadership team effectively managed ongoing pressures on margin performance, including inflation, customer pricing demands, supply chain constraints, capacity utilization issues and overall equipment effectiveness. The positive operational cash flow delivered in 2022 reflects management's discipline in controlling capital expenditures at the lowest level as a percentage of sales in the Company's history. With this cash flow from operations, AAM continued to invest in our business, reduce long-term debt and improve our balance sheet – key priorities for the Company. The 2022 annual incentive financial measure payout is approximately 50% of the 2021 annual incentive payout for financial measures. This directionally aligns decreases in the annual incentive program payout with EBITDA margin and operational cash flow performance in 2022 as compared to 2021. 46
Strategic Measures (10% of annual award) The Committee evaluated the leadership team's 2022 performance against our strategic objectives to determine the award payout for 10% of the total 2022 annual incentive. In assessing strategic performance, the Committee concluded that significant measurable actions resulted in accomplishments that continue to build and secure the core foundation of AAM, advance the Company's most critical growth initiatives, including electrification, and support a culture of innovation for long-term success. These accomplishments are described below. –Secured new business with a focus on hybrid and electrification applications and increased our new electrification business backlog with awards of the first electric-beam axle with EKA Mobility and to supply components for electric vehicles for multiple OEMs. –Advanced technology leadership and electrification by winning three Automotive News PACE awards for innovation and collaboration – a record number for AAM in one year – and participating in the Computer Electronic Show, which included a ride-and-drive event with investors and media attendees. –Continued to strengthen our balance sheet by reducing debt by more than $150 million in 2022 as well as refinancing and extending maturities of the revolving credit agreement and senior notes to extend debt maturity at a lower interest rate. This achievement extended a multi-year plan to reduce long-term debt – $1.3 billion since 2017 – despite obstacles presented by COVID, the semiconductor chip shortage and supply chain constraints. –Achieved strategic initiatives aligned with capital allocation priorities by acquiring Tekfor Group in June 2022. –Continued our successful customer relationship management through the successful launch of 17 product programs and by being honored with the GM Overdrive Award for the sixth consecutive year.. –Significantly advanced AAM's operating system and supporting business systems by integrating our environmental operating system module (E4) into the operating system and updating AAM's S4 safety program to include electrical systems safety. In consideration of meaningful anticipated long-term impact of these achievements, the Committee approved a maximum payout of 200% for the attainment of the strategic priorities described above. ESG/Sustainability Measures (10% of annual award) The Committee evaluated the management team's 2022 performance against ESG/sustainability objectives to determine the award payout for 10% of the total 2022 annual incentive. In assessing ESG/sustainability performance, the Committee concluded that significant measurable actions were taken to advance AAM's Sustainability Program to a new level. These accomplishments are described below. –Demonstrated meaningful progress along our DEI strategy roadmap, including hiring AAM's first Director of DEI, launching AAM's 2+1 global DEI program, conducting an associate engagement survey and creating action plans in response to the result,s and adding three new associate resource groups. Our progress earned AAM recognition by being placed on the Forbes list of Best Employers for Diversity. –Supported our environmental initiatives by significantly improving AAM's CDP climate change report score to an A- (from a C), exceeding the industry average, and by completing a climate scenario analysis, product lifecycle assessment and a GRI standards-based materiality assessment to establish material ESG topics for disclosure in AAM's 2023 Sustainability Report. –Enhanced disclosures in AAM's Sustainability Report, which improved ISS quality scores for Environmental and Social and received positive feedback from investors during our annual outreach campaign. –Revised our annual incentive compensation program for salaried associates to include a sustainability element for 2022. In consideration of these achievements and their expected long-term impact, the Committee approved a maximum payout of 200% payout for the attainment of the ESG/sustainability priorities described above. Financial, Strategic and ESG/Sustainability Performance Based on the actual achievement of the annual incentive financial performance measures, strategic and ESG/sustainability performance described above, the NEOs received 2022 annual incentive payouts of 125% of target. The amounts paid are shown in the Summary Compensation Table. 47
Annual Incentive Award Target Opportunities The NEO annual incentive target opportunities are as follows:
Long-Term Incentive Compensation Our LTI program is designed to reward NEOs for creating sustained shareholder value, to support ownership of Company stock and to retain and motivate executives while aligning their interests with those of our shareholders. AAM makes LTI grants to its executive officers and other executives on an annual basis, subject to the approval of the Committee. Grants are 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. 2022 LTI Award Overview
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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 for capital and operate in similar markets. These companies serve as an appropriate benchmark because of the likelihood that they will experience similar industry conditions over a three-year business cycle. For 2022, the Committee determined that 50% of the total 2022 LTI award would continue to be in the form of RSUs as a retention tool during this time of significant uncertainty and volatility resulting from the ongoing industry economic conditions and the industry pivot to electrification. This provides a retention portion of the LTI awards to maintain a strong and stable leadership team, while retaining a significant portion, or 50% as performance-based awards. Total 2022 LTI awards are 75% denominated in shares with the remainder denominated in cash. Changes to 2023 LTI Form of Awards The Committee has remained committed to increasing the emphasis on performance-based awards. Considering this area of emphasis, in February 2023, the Committee evaluated the relative proportion of RSU and performance-based awards and determined that the performance-based portion of the total 2023 LTI award would be increased from 50% to 60% to further drive the achievement of superior financial results.The remaining portion of the 2023 LTI awards are in the form of RSUs as the retention portion of the award. Performance-based LTI The Committee evaluated the performance measures for 2022 LTI awards to align with our business strategy. A key strategic objective is to strengthen our balance sheet and continue to provide for profitable growth, research and development of innovative technology and other capital priorities. Free cash flow is a critical driver to reduce leverage and ultimately convert value to shareholders. Due to its impact on the achievement of this key strategic objective and based on shareholder feedback, free cash flow was selected as the sole metric for the 2022 LTI performance-based awards. To emphasize the importance of consistent annual free cash flow generation, manage volatility and generate three-year cumulative free cash flow, the Committee included annual free cash flow targets for calendar years 2022, 2023 and 2024, each weighted at 20% of target. The remaining 40% of target is based on three-year cumulative free cash flow performance. The annual free cash flow milestones are to encourage behaviors to achieve sustained strong cash flow performance early in the three-year cycle while supporting the cumulative target. No award payouts will be made until the completion of the three-year performance period. In setting the goal rigor for 2022 – 2024 performance period, the Committee encouraged a consistent $1 billion delivery of free cash flow over rolling three-year periods. Despite higher inflationary pressure and continued market volatility, the maximum performance level is aligned with the last three-year average performance as a percentage of sales and approximates the Company's market capitalization. Performance at the maximum level would require continued achievement of near record-level free cash flow delivery. The table below shows the threshold, target and maximum free cash flow for calendar years 2022, 2023, 2024, the three-year cumulative performance period and relative TSR performance levels to be used in determining the payouts of these awards for the performance period January 1, 2022 through December 31, 2024.
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As relative TSR continues to be an important measure of performance because of its alignment with shareholder value creation, the Committee added a relative TSR modifier to the performance-based awards. Award payouts may be decreased by 15% or increased by 15% based on relative TSR performance over the performance period.
LTI Award Values The table below shows the 2022 and 2021 target LTI for our NEOs.
(1) Amounts reflect the value the Committee considered when granting awards for 2022 and 2021. These amounts differ from the value of awards shown in the Summary Compensation Table and Grants of Plan-Based Awards Table because those tables reflect the grant date fair value of performance shares, which is based on the probable outcome of the performance metrics. The amount further differs because performance unit awards are not reported in the Summary Compensation Table until earned at the end of the performance period. (2) Stated as a percentage of base salary at the time the award was made. (3) Total 2021 LTI opportunities were granted at above-target levels as a retention tool for the NEOs, who are critical to the transformation of AAM in developing next-generation products and electrification, while considering current macroeconomic and industry-related uncertainty. The following table shows the total 2021 LTI opportunities for each NEO.
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Payout of 2020 Performance Awards Sixty percent of the 2020 LTI awards granted to NEOs in 2020 were determined by Company performance. Half of the performance-based awards, or 30%, was denominated in performance shares and the remaining 30% in the form of performance units denominated in cash. Payout of the awards was based on free cash flow over the three-year performance period January 1, 2020 through December 31, 2022. Free cash flow was selected as the sole metric for the 2020 LTI performance-based awards as it is a critical driver to reduce leverage and ultimately convert value to shareholders. In February 2020, the Committee emphasized goal rigor and challenged the senior leadership team to deliver $1 billion in adjusted free cash flow, which approximates the Company's market capitalization over a three-year period. By design, the maximum target was set at a level that would require management to deliver the highest free cash flow performance in AAM's history. Despite unprecedented market conditions during the performance period, including the COVID-19 pandemic, production volatility resulting from semiconductor chip shortages experienced by our customers and supply-chain challenges, the management team delivered over $1 billion of adjusted free cash flow. This achievement has enabled AAM to reduce long-term debt and maintain liquidity during market turbulence and continue to invest in our future as a global leader in electrification propulsion while maintaining and growing our profitable core business. 51
As TSR is an important measure because of its alignment with shareholder value creation, the Committee also included a relative TSR modifier in the 2020 performance-based awards. Award payouts may be decreased by 15% or increased by 15% based on relative TSR performance over the three-year performance period. Based on free cash flow and relative TSR performance over the three-year performance period ending on December 31, 2022, the number of shares and units earned are as follows:
(1) Excludes restructuring and acquisition-related costs. See Non-GAAP Reconciliation in Appendix A. Although permitted by the LTI plan, no adjustments for the impact of COVID or other unanticipated macroeconomic events were made in determining the earned awards under the 2020 performance-based awards. The portion of the cash-denominated performance unit awards are reported in the Summary Compensation Table for 2022 as these awards are not reported until earned at the end of the performance period. Samuel Valenti III | –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 | –Oversees the Company's ethics and compliance program | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
–Oversees the Company's cyber security risk management program, including the business continuity program, and receives quarterly reports by our Chief Information Officer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation Committee | |||||
2022 Meetings: 4 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 determines the compensation of other executive officers | ||||
–Recommends incentive compensation and equity-based plans to the Board | |||||
–Approves executive officer compensation to ensure that it is designed to drive achievement of AAM's 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 | |||||
Nominating/Corporate Governance Committee | |||||
2022 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 Sustainability Program policies, strategies and performance and reviews ESG topics, including climate-related matters, with management | |||||
– Oversees human capital management, including diversity, equity and inclusion initiatives and succession planning | |||||
Technology Committee | |||||
2022 Meetings: 4 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 | |||||
–Conducts strategy discussions with the full Board | |||||
–All Board members regularly attend Technology Committee meetings | |||||
Executive Committee | |||||
2022 Meetings: 2 Members: David C. Dauch (Chair) James A. McCaslin John F. Smith | –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 | |||||
Responsible Party | Primary Areas of Risk Oversight | |||||||
Full Board | Oversees overall risk management function and strategic risks. Receives regular 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. | |||||||
Audit Committee | Monitors financial, operational, and compliance risks by regularly reviewing reports by management, Internal Audit, Company advisors and the independent auditors. Regularly reviews risk management and risk assessment practices and related policies and evaluates potential risks related to internal controls over financial reporting. Oversees the Company's cyber security and other information technology risks, controls, procedures and programs, including mitigation processes. Receives quarterly reports from the Chief Information Officer on cyber security, data protection and business continuity programs, 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. | |||||||
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. | |||||||
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. Monitors potential risks associated with our Sustainability Program such as the potential physical risks to AAM operations under certain climate change scenarios. | |||||||
Technology Committee | Monitors risks associated with the Company's product portfolio and our innovation and technology plans. |
Independence | Tenure | ||||
90% | 11 | ||||
Independent | Average Years of Service | ||||
Age | Diversity | ||||
68 | 30% | ||||
Average Age | 2 Women 1 Black |
Compensation of Directors |
Compensation of Directors |
Annual retainer | $ | 110,000 | |||
Committee chair annual retainer: | |||||
Audit Committee chair | 25,000 | ||||
Compensation Committee chair | 20,000 | ||||
Other committee chair | 15,000 | ||||
Lead Independent Director annual retainer | 35,000 |
Compensation of Directors |
Name | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2) ($) | All Other Compensation(3) ($) | Total ($) | ||||||||||
Elizabeth A. Chappell | 125,000 | 135,002 | 400 | 260,402 | ||||||||||
William L. Kozyra | 110,000 | 135,002 | 1,100 | 246,102 | ||||||||||
Peter D. Lyons | 110,000 | 135,002 | 400 | 245,402 | ||||||||||
James A. McCaslin | 165,000 | 135,002 | 300 | 300,302 | ||||||||||
William P. Miller II | 135,000 | 135,002 | 400 | 270,402 | ||||||||||
Herbert K. Parker | 110,000 | 135,002 | 400 | 245,402 | ||||||||||
Sandra E. Pierce | 110,000 | 135,002 | 400 | 245,402 | ||||||||||
John F. Smith | 125,000 | 135,002 | 400 | 260,402 | ||||||||||
Samuel Valenti III | 110,000 | 135,002 | 1,300 | 246,302 |
Name | Restricted Stock Units Outstanding (#) | ||||
Elizabeth A. Chappell | 87,963 | ||||
William L. Kozyra | 93,530 | ||||
Peter D. Lyons | 97,542 | ||||
James A. McCaslin | 110,303 | ||||
William P. Miller II | 120,556 | ||||
Herbert K. Parker | 19,095 | ||||
Sandra E. Pierce | 69,957 | ||||
John F. Smith | 119,014 | ||||
Samuel Valenti III | 31,903 |
Beneficial Stock Ownership |
Beneficial Stock Ownership |
Shares Beneficially Owned | Percent of Shares Outstanding | |||||||
Greater Than 5% Owners | ||||||||
Blackrock, Inc.(1) | 18,593,723 | 16.20 | ||||||
55 East 52nd Street | ||||||||
New York, NY 10055 | ||||||||
The Vanguard Group(2) | 14,669,907 | 12.81 | ||||||
100 Vanguard Blvd. | ||||||||
Malvern, PA 19355 | ||||||||
Dimensional Fund Advisors LP(3) | 5,973,542 | 5.20 | ||||||
6300 Bee Cave Road, Building One | ||||||||
Austin, TX 78746 | ||||||||
Non-Employee Directors (4) | ||||||||
Elizabeth A. Chappell | 136,090 | * | ||||||
William L. Kozyra | 97,542 | * | ||||||
Peter D. Lyons | 102,542 | * | ||||||
James A. McCaslin | 137,514 | * | ||||||
William P. Miller II | 144,564 | * | ||||||
Herbert K. Parker | 99,957 | * | ||||||
Sandra E. Pierce | 69,957 | * | ||||||
John F. Smith | 130,514 | * | ||||||
Samuel Valenti III | 31,903 | * | ||||||
Named Executive Officers | ||||||||
David C. Dauch(5) | 1,598,528 | 1.4 | ||||||
Christopher J. May | 256,767 | * | ||||||
Michael K. Simonte | 543,773 | * | ||||||
Norman Willemse | 196,352 | * | ||||||
Michael J. Lynch(5) | 124,105 | * | ||||||
All Directors and Executive Officers as a Group (17 persons) | 3,859,297 | 3.3 |
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. 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. In 2022, the Audit Committee ratified a transaction involving David C. Dauch and Century, LLC, a supplier of specialty metal products and heat treating to AAM. In September 2021, Mr. Dauch and certain members of his family made investments in Century, LLC. Mr Dauch and his brother each serve on the company's board. During 2022, Century, LLC received $674,485 in payments from AAM for ordinary course supply of products and services on terms no less favorable to AAM than terms generally available to an unaffiliated third party under the same or similar circumstances. The Committee concluded that this transaction is not inconsistent with AAM's Code of Business Conduct or the Code of Ethics for the CEO, CFO and other Senior Financial Officers. Mr. Dauch's son, Zachary Dauch, is Director, Product Management at AAM. Zachary Dauch earned $236,400 in base salary and annual bonus for 2022. Norman Willemse's daughter, Samantha Thoma, is Manager, AAM Cost System. Ms. Thoma earned $120,078 in base salary and annual bonus for 2022. Mr. Willemse's son-in-law, Grant Acheson, is Manager, Factory Floor Business Systems and earned $141,300 in base salary and annual bonus for 2022. There is no direct reporting relationship between Mr. Dauch and his son or between Mr. Willemse and his daughter or son-in-law. 34 Advisory Vote on Executive Compensation | |
Proposal 2: Advisory vote on Executive Compensation |
þ | The |
Compensation Discussion and Analysis |
Compensation Discussion and Analysis |
Named Executive Officers |
Named Executive Officers | ||
David C. Dauch Chairman & Chief Executive Officer | ||
Christopher J. May Vice President & Chief Financial Officer | ||
Michael K. Simonte President | ||
Norman Willemse President Forging | ||
Michael J. Lynch Chief Operating Officer |
Compensation Discussion and Analysis |
Executive Summary |
Sales | Adjusted EBITDA | ||||
$5.8B | $747M | ||||
12.9% of Sales | |||||
Cash Provided by Operating Activities | Reduced Total Debt by More Than | ||||
$449M | $150M | ||||
þ | Began to supply electric drive units for the | þ | Secured contracts worth over $10 billion for next-generation full-size truck axle programs with multiple customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
þ | Awarded multiple contracts to supply major global OEMs with electric components for electric vehicles | þ | Acquired Tekfor Group to leverage our core strengths, diversify geographic and
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
þ | Won three PACE Awards for our innovative electric vehicle technology and collaboration – our record number of | þ | Named by General Motors as the new axle supplier for its next-generation Colorado and Canyon pickup trucks for model year 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
þ | Made commitment to achieve net zero carbon emissions by 2040 in our Sustainability Report | þ | Recognized by General Motors as an | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
þ | Continued strong free cash flow generation and debt reduction | þ | Recognized as |
Compensation Discussion and Analysis |
Strategic Business Objective | Alignment | Incentive Metric | ||||||
Continue to strengthen the balance sheet; provide funding for organic growth, research & development, and other capital priorities; reduce leverage | Operational Cash Flow –2022 Annual Incentive Program (40% metric) | |||||||
Develop innovative technology, including electrification, and reinvest in research & development | Free Cash Flow –2022 LTI Performance Awards (100% metric of performance-based LTI) | |||||||
Secure future replacement business and achieve profitable growth while retaining flexibility to address market changes | Strategic Goals –2022 Annual Incentive Program (10%) | |||||||
Drive productivity and financial performance | EBITDA margin –2022 Annual Incentive Program (40% metric) | |||||||
Achieve progress on ESG priorities, including DEI initiatives and environmental goals | ESG/Sustainability Goals –2022 Annual Incentive Program (10%) | |||||||
Create sustainable value for shareholders and align with our shareholders' experience | Relative TSR –2022 LTI Performance Awards (modifier -15% or +15%) |
Compensation Discussion and Analysis |
Compensation Discussion and Analysis |
Compensation of Executive Officers |
Supports Business Strategy | Market Competitive | Aligned with Shareholder Interests | ||||||
–Programs utilize incentive metrics aligned with business strategy –Rigorous performance goals as key drivers of enterprise value creation –88% of CEO compensation is variable and at risk –The 2022 annual incentive program has a strategic objective and an ESG/sustainability objective, each weighted 10% | –Attract and retain executive talent –Benchmark pay against a peer group of similarly sized companies –Target direct compensation between the 50th and 75th percentile –Incentive awards align with operational results and shareholder value creation | –Mix of annual and long-term incentive ("LTI")I balances focus between short-term results and long-term share appreciation –Significant portion of LTI compensation paid in shares and performance-based –2022 say-on-pay vote of 92%, consistent with votes over 90% for the past 5 years –Stock ownership requirements | ||||||
Component | Purpose | Characteristics | ||||||||||||
Base Salary | Based on level of responsibility, experience, individual performance and internal pay equity | Fixed cash component generally targeted at peer group median | ||||||||||||
Annual Incentive Compensation | Incentive to drive short-term performance aligned with strategic goals | Cash award that is at risk due to service and performance conditions | ||||||||||||
Long-Term Incentive Compensation | Incentive to drive strategic growth and value creation that supports retention of executives | A mix of performance shares, performance units and RSUs tied to financial and share performance that drives results aligned with shareholder interests | ||||||||||||
Retirement and Deferred Compensation | Provide income upon retirement | 401(k) and nonqualified defined benefit and deferred compensation plans | ||||||||||||
Perquisites | Limited supplement to total direct compensation | Primary benefit is a Company-provided vehicle with AAM product content |
Compensation Discussion and Analysis |
Compensation Discussion and Analysis |
2021 Peers | 2021 to 2022 Changes | 2022 Peers | ||||||||||||
Adient plc Aptiv PLC BorgWarner Inc. Cooper-Standard Holdings Inc. Cooper Tire & Rubber Company Dana Incorporated Delphi Technologies PLC Flowserve Corporation Goodyear Tire & Rubber Company Lear Corporation Meritor, Inc. Navistar International Corporation OshKosh Corporation Parker-Hannifin Corporation Rockwell Automation Tenneco Inc. Terex Corporation Trinity Industries, Inc. Visteon Corporation | ADDITIONS | Adient plc Aptiv PLC BorgWarner Inc. Cooper-Standard Holdings Inc. Dana Incorporated Flowserve Corporation Garrett Motion Inc. Goodyear Tire & Rubber Company LCI Industries Lear Corporation Meritor, Inc. OshKosh Corporation Parker-Hannifin Corporation Rockwell Automation Tenneco Inc. Terex Corporation The Timken Company Trinity Industries, Inc. Visteon Corporation | ||||||||||||
More closely aligned with the size and complexity of our business, our industry and competition for talent Garrett Motion Inc. LCI Industries The Timken Company | ||||||||||||||
+ | ||||||||||||||
REMOVAL | ||||||||||||||
Removed due to being acquired Cooper Tire & Rubber Company Delphi Technologies PLC Navistar International Corporation | ||||||||||||||
- | ||||||||||||||
Compensation Discussion and Analysis |
2022 | 2021 | |||||||||||||
Base Salary | $1,250,000 | $1,150,000 | ||||||||||||
Target Annual Incentive | $1,875,000 | $1,552,500 | ||||||||||||
Target Long-Term Incentive | $7,187,500 | $5,750,000 |
Compensation Discussion and Analysis |
Direct Compensation Elements |
Base Salaries as of December 31, | 2022 | 2021 | % Change | ||||||||||||||
David C. Dauch | $1,250,000 | $1,150,000 | 9% | ||||||||||||||
Christopher J. May | $ 615,000 | $ 550,000 | 12% | ||||||||||||||
Michael K. Simonte | $ 750,000 | $ 750,000 | —% | ||||||||||||||
Norman Willemse | $ 600,000 | $ 600,000 | —% | ||||||||||||||
Michael J. Lynch (effective December 1, 2022) | $ 675,000 | $ 550,000 | 23% |
Compensation |
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 | 14,250 | 412,150 | 14,562 | 14,770 | 2,334 | 5,706 | 463,772 | ||||||||||||||||
Christopher J. May | 14,025 | 157,050 | 2,717 | 23,499 | — | 913 | 198,204 | ||||||||||||||||
Michael K. Simonte | 14,250 | 235,550 | 8,549 | 27,636 | — | 2,498 | 288,483 | ||||||||||||||||
Gregory S. Deveson | 9,750 | 68,750 | 5,948 | — | — | 913 | 85,361 | ||||||||||||||||
Norman Willemse | 13,750 | 164,850 | 8,941 | 24,658 | — | 2,198 | 214,397 |
Adjusting to meet market challenges | Managing what we can control | |||||||
AAM's Solid 2022 Operating Performance | ||||||||
Advancing electrification across our product portfolio | Moving forward ESG objectives |
Compensation Discussion and Analysis |
Weighting | Threshold (Payout 0%) | Target (Payout 100%) | Maximum (Payout 200%) | 2022 Actual Performance(1) | % of Target Earned | 2022 Actual Payout(2) | |||||||||||||||||
EBITDA Margin | 40% | 11.0% | 13.50% | 15.00% | 13.06% | 82% | 33% | ||||||||||||||||
Operational Cash Flow | 40% | $400 million | $550 million | $625 million | $573 million | 131% | 52% |
Compensation Discussion and
Analysis |
Compensation Discussion and Analysis |
2022 | 2021 | |||||||
Target Opportunity (as a % of base salary) | Target Opportunity (as a % of base salary) | |||||||
David C. Dauch | 150% | 135% | ||||||
Christopher J. May | 80% | 80% | ||||||
Michael K. Simonte | 100% | 100% | ||||||
Norman Willemse | 80% | 80% | ||||||
Michael J. Lynch (effective December 1, 2022) | 100% | 80% |
Form of Award | ||||||||
Performance Awards | RSUs | |||||||
LTI Mix | 50% | 50% | ||||||
Objective | Drive performance of strategic business objectives | Retain NEOs and provide shareholder alignment | ||||||
Performance Measure | Free Cash Flow | Continued service with AAM | ||||||
Competitor Peer Group for Relative TSR | Adient plc Autoliv Inc. BorgWarner Inc. Dana Incorporated Lear Corporation Magna International Inc. Meritor Inc *. Tenneco Inc.* *Removed during 2022 due to acquisition | Not applicable | ||||||
Award Payout Modifier of -15% or +15% | Relative TSR | Not applicable | ||||||
Performance / Vesting Period | Subject to achievement of performance measures over a 3-year period | Cliff vest on the 3rd anniversary of grant | ||||||
Settlement | Performance Shares (25%) - Common stock Performance Units (25%) - Cash | Common stock |
Compensation Discussion and Analysis |
Free Cash Flow | Weighting | Threshold | Target | Maximum | ||||||||||
2022 | 20% | $200 million | $250 million | $300 million | ||||||||||
2023 | 20% | $200 million | $250 million | $300 million | ||||||||||
2024 | 20% | $200 million | $300 million | $400 million | ||||||||||
3-yr Cumulative | 40% | $600 million | $800 million | $1 billion | ||||||||||
Payout % | 50% | 100% | 200% |
Compensation Discussion and Analysis |
TSR Percentile Rank | Threshold | Target | Maximum | |||||||||||
3-yr Cumulative | Below 25th | Between 25th - 74th | 75th and above | |||||||||||
Modifier | (15)% | —% | 15% |
2022 Target Long-Term Incentive Opportunity | 2021 Target Long-Term Incentive Opportunity(3) | |||||||||||||
($)(1) | %(2) | ($)(1) | %(2) | |||||||||||
David C. Dauch | 7,187,500 | 575% | 5,750,000 | 500% | ||||||||||
Christopher J. May | 1,537,500 | 250% | 1,375,000 | 250% | ||||||||||
Michael K. Simonte | 2,250,000 | 300% | 2,250,000 | 300% | ||||||||||
Norman Willemse | 1,200,000 | 200% | 1,200,000 | 200% | ||||||||||
Michael J. Lynch | 1,100,000 | 200% | 682,500 | 150% |
Amount of LTI Increase | Total 2021 LTI Opportunity | |||||||
$ | $ | |||||||
David C. Dauch | 575,000 | 6,325,000 | ||||||
Christopher J. May | 275,000 | 1,650,000 | ||||||
Michael J. Simonte | 375,000 | 2,625,000 | ||||||
Norman Willemse | 143,750 | 1,343,750 | ||||||
Michael J. Lynch | 113,750 | 796,250 |
Compensation Discussion and Analysis |
Compensation Discussion and Analysis |
Actual Performance(1) | Payout | |||||||
Adjusted Free Cash Flow | $1,047.3 million | 200% | ||||||
Award Modifier: | ||||||||
Relative TSR | Below 25th percentile | -15% | ||||||
Final Payout as a % of Target | 170% |
Indirect Compensation Elements |
Compensation Discussion and Analysis |
Other Compensation Matters |
Compensation Discussion and Analysis |
Multiple of Base Salary | |||||
Chief Executive Officer | 6 | ||||
Chief Financial Officer; President; Chief Operating Officer | 3 | ||||
Other Executive Officers | 2 |
Compensation Committee Report |
Summary Compensation Table The following table summarizes the compensation of our named executive officers (NEOs) for the fiscal years ended December 31, 2022, December 31, 2021 and December 31, 2020 to the extent they served as NEOs in such years.
(1)Compensation of Mr. Dauch is based solely on employment as an executive officer. He received no compensation for serving as a director. (2)For 2020, reflects temporary reductions in base salary for NEOs in response to the impact of COVID. (3)Reflects the grant date fair value of restricted stock units and performance share awards made during fiscal year 2022 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 8 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2022 regarding assumptions underlying the valuation of equity awards. Assuming the maximum performance levels are achieved for the performance share awards granted on February 28, 2022, the maximum value of performance share awards would be $4,132,813 for Mr. Dauch, $884,080 for Mr. May, $1,293,768 for Mr. Simonte, $690,013 for Mr. Willemse and $632,508 for Mr. Lynch based on grant date fair value. These amounts may not reflect the actual value realized upon vesting or settlement, if any. 56
(4)Reflects amounts earned under the AAM Incentive Compensation Program for Executive Officers for 2022 and the amounts earned under the 2018 Omnibus Incentive Plan for long-term performance unit cash awards granted in 2020 with a 3-year performance period ending December 31, 2022. The 2022 amounts earned are as follows:
(5)Reflects the annualized increase in pension value under the AAM Pension Plan, the Albion Pension Plan and the SERP. See Pension Benefits Table. There was a net negative change in pension values for 2022 of ($299,757) for Mr. Dauch, ($159,926) for Mr. May, ($163,665) for Mr. Simonte, ($203,291) for Mr. Willemse and ($101,684) for Mr. Lynch. There are no above-market or preferential earnings on compensation deferred under our ERSP or our EDC Plan. (6)The components of All Other Compensation for 2022 are as follows:
(a)Includes employer matching contributions under AAM’s 401(k) plan. (b)Includes employer retirement contributions under AAM’s 401(k) plan and the ERSP as noted below. The ERSP contributions are further described in the Nonqualified Deferred Compensation table.
(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%. Although there is no incremental cost to the company, the NEOs have access to the use of a fleet demonstration 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 an annual perquisite allowance of $50,000, the cost of personal umbrella liability insurance premiums, spousal travel and the cost of an executive physical. For Mr. Simonte and Mr. Lynch, includes the cost of personal umbrella liability insurance premiums. For Mr. May and Mr. Willemse, includes the cost of personal umbrella liability insurance premiums and the cost of an executive physical. (7) Mr. Lynch was not an NEO in 2020. 57
Grants of Plan-Based Awards Annual and long-term incentive awards granted in 2022 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.
(1)Reflects annual incentive awards granted under the AAM Incentive Compensation Program for Executive Officers and performance unit awards granted under the 2018 Omnibus Incentive Plan. The performance unit awards are payable in cash based on annual free cash flow for calendar years 2022, 2023 and 2024 and the 3-year cumulative free cash flow over the performance period January 1, 2022 through December 31, 2024. The performance unit award payouts may be modified based on relative TSR over the three-year performance period. The threshold and maximum amounts include the impact of the relative TSR modifier at threshold and at maximum. (2)Reflects performance share awards granted under the 2018 Omnibus Incentive Plan. The awards are payable in common stock based on annual free cash flow for calendar years 2022, 2023 and 2024 and the 3-year cumulative free cash flow over the performance period January 1, 2022 through December 31, 2024. The award payouts may be modified based on relative TSR over the three-year performance period. The threshold and maximum amounts include the impact of the relative TSR modifier at threshold and at maximum. (3)Reflects RSUs granted under the 2018 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 2022. 58
(4)Reflects the full grant date fair value of performance share awards and RSUs made during fiscal year 2022 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 8 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2022 regarding assumptions underlying the valuation of equity awards. 59
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, 2022.
Annual Incentive Awards In 2022, annual incentive awards were granted under the AAM Incentive Compensation Program for Executive Officers. EBITDA Margin and Operational Cash Flow, each weighted 40%, were selected as financial measures for the 2022 annual incentive awards. The remaining 20% of the award was based on strategic objectives (10%) and ESG/sustainability objectives (10%). The maximum payout for each performance metric is 200%. See Annual Incentive Compensation in the CD&A. Long-Term Incentive Awards In Restricted Stock Units The RSUs granted in Performance Share Awards The performance share awards granted to NEOs in Performance Unit Awards The performance unit awards granted to NEOs in
The following
Outstanding Equity Awards at December 31,
(1)Reflects value of outstanding RSUs at (2)Reflects RSUs granted on March (3)Reflects RSUs granted on March (4)Reflects RSUs granted on (5)Reflects performance shares granted on March (6)Reflects performance shares granted on February 28, 2022 for the performance period January 1, 2022 through December 31, 2024 that would be paid out at the end of the performance period based on free cash flow performance through December 31, 2022. Award amounts reflect a payout at maximum based on free cash flow performance (relative TSR modifier at 0%). Payouts will be determined at the end of the performance period based on actual performance. (7)Reflects the value of (8)Upon their retirement in 2023, Mr. Simonte and Mr. Willemse will receive pro-rata payouts of their outstanding equity awards as further described in the Potential Payments Upon Termination or Change in Control table.
Stock Vested
(1)Reflects the number of shares vested in (2)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, 30, 2022.
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, American Axle & Manufacturing, Inc. Pension Plan (AAM Pension Plan) for Mr. Dauch, Mr. May, Mr. Simonte and Mr. The following table shows the value of the benefits accumulated by the NEOs and their years of credited service under the AAM Pension Plan, the Albion Pension Plan and the SERP, each as of December 31,
(1)Benefits for Mr. Dauch, Mr. May, Mr. Simonte and Mr. Lynch under the AAM Pension Plan were frozen effective December 31, (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, (3)Mr. Dauch, Mr. Simonte and Mr. (4)Mr. Willemse is not a participant in the AAM Pension Plan. Mr. Willemse was eligible to retire on December 31, AAM Pension Plan. 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 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 AAM Pension Plan 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. Benefits were frozen on December 31, 2006 for associates who were not eligible to retire by December 1, 64
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 as a former employee of 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 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 frozen SERP benefit amount was determined as of April 30, 2018 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 AAM Pension Plan, the 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 AAM Executive Retirement Savings Plan (ERSP) and the Executive Deferred Compensation Plan (EDC) for the
(1)Reflects the annual (2)Reflects hypothetical accrued earnings or losses during Executive Retirement Savings Plan The ERSP was adopted 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 based on position and years of service are eligible to receive an additional Company contribution equal to 12.5% of base salary and bonus paid for calendar years 2019 through 2023. 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 are unfunded and unsecured obligations of AAM. ERSP contributions and account balances vest at the earliest of the following: –Age 55 with 10 years of service; –Age 60 with 5 years of service; or –Age 65 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 or termination of employment. Executive Deferred Compensation Plan The EDC is a nonqualified, tax-deferred savings plan for certain executives, including the NEOs. The EDC was amended to freeze further deferrals as of December 31, 2018. Employer matching contributions vest 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 an executive has no actual or constructive 66
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). Investment Options The table below shows the investment fund options available under the ERSP and the EDC as of December 31,
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, 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. 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 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 of the Code. 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 is also entitled to receive accrued and unpaid compensation, as 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.
The above describes the terms of Mr. Simonte's employment agreement, however, Mr. Simonte will retire from AAM on March 24, 2023. AAM Executive Officer Severance Plan Under the Amended and Restated AAM Executive Officer Severance Plan, –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 Severance 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 other than as a broad-based reduction applicable to other participants; 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 (other than by mutual agreement). 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. 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. 69
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 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. 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 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 payments or benefits under Mr. Dauch's or Mr. Simonte's employment agreement, the CIC Plan or the Severance 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, such 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. –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 –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,
Notes to Termination Tables (1)For Mr. Dauch and Mr. Simonte, amounts reflect CIC benefits under their employment agreements and outstanding LTI awards as of December 31, (2)Under their employment agreements, Mr. Dauch and Mr. Simonte are entitled to receive two years’ base salary and target bonus and accrued and unpaid compensation upon resignation for good reason or termination without cause. The annual bonus amount for each reflects the (3)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, (4)In the event of disability or retirement, AAM’s Incentive Compensation Program for Executive Officers provides a pro-rata award payout through the date of disability or retirement. Amounts reflect (5)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 (6)The (7)The (8)The
(9)The (10)Reflects a joint and survivor benefit payable monthly. (11)Reflects the present value of the frozen SERP benefit calculated assuming a lump sum payment for Mr. Dauch, Mr. Simonte, Mr. Willemse and Mr. (12)Reflects welfare benefits assuming retirement under the retiree welfare plan. (13)Amounts reflect account balances in the ERSP as of December 31, (14)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. (15)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. (16)Under the Severance Plan, Mr. May, Mr. (17)Under the CIC Plan, Mr. May, Mr. (18) Assumes total and permanent disability on December 31, (19)Under the Severance Plan, Mr. May, Mr. (20)Reflects benefits equal to 100% of base salary for the first year of disability and 60% of base salary until retirement for Mr. (21)Reflects basic and supplemental life insurance benefits through date of termination (30 months from date of disability) for Mr. (22)Under the CIC Plan, Mr. May, Mr. (23)Amounts reflect account balances in the EDC Plan as of December 31, (24)Mr. Simonte will retire on March 24, 2023 and Mr. Willemse retired on March 17, 2023.
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. To 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 our total employee population. Our population was evaluated as of October 31, 2020 and reflects paid compensation from January 1, 2020 through October 31, 2020. We have excluded 453 associates in Brazil, 176 in Thailand and 29 in Sweden out of our global employee population of approximately 20,000 as of the determination date. We established a consistently applied compensation measure inclusive of base pay, overtime, incentives and allowances. Where allowed under the rule, we annualized compensation through December 31, 2020. 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, 2020. There have been no significant changes in our workforce population or compensation arrangements for 2022 that would impact the methodology that was used to calculate the median employee in 2020. Based on the above determination, the total compensation for the median employee is
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(v) of Regulation S-K, the following provides information as to the relationship between executive compensation actually paid (as defined by SEC rules) and certain financial performance of the Company. The Committee did not consider the pay versus performance disclosure when making its incentive compensation decisions. For further information as to the alignment of our compensation programs with the Company's performance, see Compensation Discussion and Analysis. The amounts included in the tables below are calculated in accordance with SEC rules and do not represent amounts actually earned or realized by our NEOs, including with respect to RSUs and performance shares. See the Stock Vested Table.
(1)Reflects amounts reported in the Summary Compensation Table total column for each corresponding year for Mr. Dauch. (2)Reflects amounts of "compensation actually paid" to Mr. Dauch, as computed in accordance with Item 402(v) of Regulation S-K. The amounts do not reflect the actual amount of compensation earned by or paid to Mr. Dauch during the applicable year. In accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments were made to Mr. Dauch's total compensation for each year to determine compensation actually paid.
(3)Reflects the average of the amounts reported in the Summary Compensation Table total column for the NEOs (other than the CEO) as a group for each corresponding year. The NEOs included in calculating the average amounts in each applicable year are Mr. May, Mr. Simonte, Mr. Willemse and Mr. Lynch for 2022 and 2021 and Mr. May, Mr. Simonte, Mr. Willemse and Gregory S. Deveson for 2020. 76
(4)Reflects the average of amounts of "compensation actually paid" to the NEOs (other than the CEO) as a group in accordance with Item 402(v) of Regulation S-K. The amounts do not reflect the actual average amount of compensation earned by or paid to the NEOs during the applicable year. In accordance with the requirements of Item 402(v) of Regulation S-K, the adjustments made to the NEOs' total compensation for each year to determine compensation actually paid are shown below.
(5)Cumulative TSR is calculated by the difference between the Company's share price at the end and the beginning of the measurement period divided by the Company's share price at the beginning of the measurement period. No dividends were paid during any of the years. (6)Represents the weighted peer group TSR, weighted according to the respective companies' stock market capitalization at the beginning of each period for which a return is indicated. The peer group used for this purpose is the annual report peer group (competitor peer group). (7)Reflects Net Income (Loss) as reported in our annual report on Form 10-K for the applicable year. (8)Adjusted free cash flow is a key financial metric used in the AAM Incentive Compensation Program for Executive Officers and the 2018 Omnibus Incentive Plan. This metric is a non-GAAP financial measure. Such information is reconciled to its closest GAAP measure in the Non-GAAP Reconciliation in Appendix A. Financial Performance Measures Our compensation programs are designed to link pay to the Company's financial performance. In addition to adjusted free cash flow, the most important financial measures used by the Committee to link NEO compensation to performance are shown below.
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Analysis of the Information Presented in the Pay versus Performance Table In accordance with Item 402(v) of Regulation S-K, the following graphics describe the relationship between information presented in the Pay versus Performance Table. 78
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Frequency of Future Advisory Votes
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.
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Ratification of Independent Auditors
The Audit Committee is directly responsible for the appointment, oversight, compensation and retention of the independent registered public accounting firm that audits AAM's consolidated financial statements and internal control over financial reporting. The Audit Committee has appointed Deloitte & Touche LLP to serve as AAM's independent registered public accounting firm for the year ending December 31, Deloitte & Touche LLP (D&T) and its predecessors have acted as our independent registered public accounting firm since 1998. The Audit Committee believes that our long-term engagement of D&T enhances audit quality due to the firm's in-depth understanding of our global business, accounting policies, practices and systems, and internal controls over financial reporting. The firm's familiarity with the Company's business, people, accounting systems and risk profile also enhances audit efficiency and effectiveness. As a result of D&T's lead audit partner rotation every five years, as required by SEC rules and D&T policy, the Audit Committee believes that D&T provides fresh audit perspective without the cost and disruption associated with a change in audit firms. The current lead audit partner was appointed to serve in this role beginning in 2019. The Audit Committee engages in an annual evaluation of the independent auditor's qualifications, performance and independence. In the course of its review, the Audit Committee considers, among other factors: –the quality and efficiency of D&T's historical and recent audit plans and performance on the audit; –D&T's capability and expertise in handling the breadth and complexity of the Company's global operations; –D&T's knowledge and expertise regarding the automotive industry and D&T's network of partners and managers in key areas of global operation; –external data on audit quality and performance, including recent Public Company Accounting Oversight Board (PCAOB) reports on D&T and its peer firms; –the appropriateness of the firm's fees for audit and non-audit services; –the quality and candor of D&T's communications with the Audit Committee and management; and –D&T's independence and objectivity in its performance of audit services. The Audit Committee believes that the continued retention of D&T to serve as AAM's independent registered public accounting firm is in the best interests of AAM and its shareholders. The Board is requesting that shareholders ratify the appointment of D&T 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 D&T is in the best interests of the Company and its shareholders. Representatives of Deloitte & Touche LLP will attend the
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 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
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,
(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 (4)Other fees
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, 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, Audit Committee of the Board of Directors William P. Miller II, Chair James A. McCaslin Herbert K. Parker Sandra E. Pierce John F. Smith Samuel Valenti III
Voting and Virtual Meeting Information Why am I receiving this proxy statement? You received these proxy materials because you owned shares of AAM common stock on March This proxy statement, together with our Annual Report for the fiscal year ended December 31, What is "Notice and Access" 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 can vote either online during the annual meeting or by proxy without attending the meeting. To ensure a quorum, we urge you to vote by proxy even if you plan to attend the virtual only annual meeting. If you attend the virtual meeting and vote during the meeting, that vote will override your proxy vote. To vote your shares, follow the instructions in the notice, voter instruction form or proxy card. Shareholders voting by proxy may use one of the options below.
If your shares are held through an intermediary, such as a bank, broker, or other holder of record, the information sent by your holder of record will explain the voting options available to you. The telephone and internet voting facilities for shareholders will close at 1:00 a.m. Eastern Time on May How many shares may vote at the meeting? As of March How many votes must be present to hold the meeting? Under AAM’s by-laws, a majority of the votes that can be cast must be present online at the virtual annual meeting or represented by proxy to constitute a quorum for the meeting. Abstentions and broker non-votes (explained below) will be counted as present and entitled to vote for purposes of determining a quorum.
Can I change my vote? Yes. At any time before your shares are voted by proxy at the meeting, you may change your vote by: –revoking it by written notice to AAM’s Secretary at the address on the notice; –voting online during the annual meeting; or –delivering a later-dated proxy vote by mail, telephone or over the internet. If you hold your shares through an intermediary, refer to the materials sent by your bank, broker, or other holder of record for information about revoking or changing your proxy. How many votes do I have? You will have one vote for each share of AAM common stock that you owned at the close of business on March How many votes must be present to hold the meeting? Under 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 a one-year, two-year or Proposal 4 — 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 virtually or by proxy is cast in favor of the proposal. Who will count the votes? A representative 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 virtual meeting. What if I abstain from voting or vote “abstain”? In you abstain from voting or vote "abstain," your shares will: –be counted as present for purposes of determining whether there are enough votes to establish a quorum; –have no effect on the outcome of the election of directors; or –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 through an intermediary 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 other 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. How do I attend the virtual annual meeting? The annual meeting will be held solely online by live webcast. You will be able to attend the annual meeting online and submit your questions before or during the meeting by visiting To participate in the annual meeting, you will need to review the information included on your Notice of Internet Availability, proxy card or voter instructions that accompanied your proxy materials. If you own shares through an intermediary, such as a bank or broker, you must register in advance of the annual meeting using the instructions below. The virtual annual meeting will begin promptly at 8:00 a.m. Eastern Time on May How do I register to attend the virtual annual meeting? If you are a registered shareholder (you hold your shares through our transfer agent, Computershare), you do not need to register to attend the annual meeting. If you own shares through an intermediary, such as a bank or broker, you must register in advance to attend the annual meeting. To register, you must submit proof of your proxy power (legal proxy) reflecting your AAM share holdings along with your name and email address to Computershare. Requests for registration must be labeled as "Legal Proxy" and be received no later than 5:00 p.m. Eastern Time on May Direct your request for registration to Computershare using either of the following methods. –Forward the email from your broker, or attach an image of your legal proxy in an email to: legalproxy@computershare.com. –Mail a copy of the legal proxy to: Computershare, American Axle & Manufacturing Holdings, Inc. Legal Proxy, P.O. Box 43001, Providence, RI 02940-3001
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, 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
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: –following the instructions provided on your proxy card, voter instruction form, or –going to www.envisionreports.com/axl and following the instructions 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. Proposals for Inclusion in 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 Director Nomination for Inclusion in AAM's by-laws 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 Other Proposals and Nominations In addition, AAM’s by-laws require stockholders intending to present any matter for consideration at the Proponents must submit stockholder proposals and recommendations for nomination as a director in writing, addressed 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 We 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.
Appendix A Non-GAAP Reconciliation AAM has included in the proxy statement adjusted EBITDA, adjusted EBITDA margin, Operational Cash Flow and adjusted Free Cash Flow, which are financial metrics used in the AAM Incentive Compensation Program for Executive Officers and the 2018 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 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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