Important — your proxy is enclosed.
MATERION CORPORATION
6070 Parkland Boulevard
Mayfield Heights, Ohio 44124
PROXY STATEMENT
March 26, 2018April 4, 2023
GENERAL INFORMATION
Your Board of Directors (Board) is furnishing this proxy statement to you in connection with our solicitation of proxies to be used at our annual meeting of shareholders to be held on May 2, 2018.17, 2023. The proxy statement isand other proxy materials are being mailedsent to shareholders on March 26, 2018.April 4, 2023.
Registered Holders. If your shares are registered in your name, you may vote in person or by proxy. If you decide to vote by proxy, you may do so by telephone, over the Internet or by mail.
By telephone. After reading the proxy materials, and with your proxy card in front of you, you may call the toll-free number, 1-866-883-3382,1-800-690-6903, using a touch-tone telephone. You will be prompted to enter your control number, which is a 16-digit number located in a box on your proxy card that you can also receive in the last four digits of your Social Security Number or Tax Identification Number,mail, if requested, then follow the simple instructions that will be given to you to record your vote.
Over the Internet. After reading the proxy materials, you may vote and withsubmit your proxy online at www.proxyvote.com. Even if you request and receive a paper copy of the proxy materials, you may vote online by going to www.proxyvote.com and entering your control number, which is a 16-digit number located in a box on your proxy card that you can also receive in front of you, you may access the website at http://www.proxypush.com/mtrn. You will be prompted to enter the last four digits of your Social Security Number or Tax Identification Number,mail, if requested, then follow the simple instructions that will be given to you to record your vote.
By mail. After reading the proxy materials, you may mark, sign and date your proxy card and return it in the enclosed prepaid and addressed envelope.
The Internet and telephone voting procedures have been set up for your convenience and have been designed to authenticate your identity, allow you to give voting instructions and confirm that those instructions have been recorded properly. Without affecting any vote previously taken, you may revoke your proxy by delivery to us of a new, later dated proxy with respect to the same shares, or giving written notice to us before or at the annual meeting. Your presence at the annual meeting will not, in and of itself, revoke your proxy.
Participants in the Materion Corporation Retirement Savings Plan and/or the Payroll Stock Ownership Plan (PAYSOP). Plan. If you participate in the Retirement Savings Plan, and/or the PAYSOP, the independent trustee for eachthe plan, Fidelity Management Trust Company, will vote your plan shares according to your voting directions. You may give your voting directions to the plan trustee in any one of the three ways set forth above. If you do not return your proxy card or do not vote over the Internet or by telephone, the trustee will not vote your plan shares. Each participant who gives the trustee voting directions acts as a named fiduciary for the applicable plan under the provisions of the Employee Retirement Income Security Act of 1974, as amended.
Nominee Shares. If your shares are held by a bank, broker, trustee or some other nominee, that entity will give you separate voting instructions.
In addition to the solicitation of proxies by mail, we may solicit the return of proxies in person, by telephone, facsimile or e-mail. We will request brokerage houses, banks and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of shares and will reimburse them for their expenses. We will bear the cost of the solicitation of proxies.
Voting. At the close of business onon March 7, 2018, the20, 2023, the record date for the determination of shareholders entitled to notice of, and to vote at, the annual meeting, we hadthere were 20,608,637 shares of common stock outstanding and entitled to vote 20,154,150 shares of common stock.at the meeting. Each outstanding share of common stock entitles its holder to one vote on each matter brought before the meeting.
With respect to Proposal 1, the nominees receiving the greatest number of votes for their election will be elected as directors of Materion Corporation, subject to the Company's Majority Voting Policy (described below). The approval of each of Proposals 2 and 3 requires the affirmative vote of a majority of the votes cast, whether in person or by proxy, on such proposals at the 2018 annual meeting.meeting and the frequency of future advisory votes on named executive officer compensation in Proposal 4 receiving the greatest number of votes (every year, every two years or every three years) will be the frequency recommended by shareholders.
Abstentions and Broker Non-votes. At the annual meeting, the inspectors of election appointed for the meeting will tabulate the results of shareholder voting. Under Ohio law and our codeCode of regulations,Regulations, properly signed proxies that are marked “abstain” or are held in “street name” by brokers and not voted on one or more of the items (but otherwise voted on at least one item) before the meeting will be counted for purposes of determining whether a quorum has been achieved at the annual meeting.
If you do not provide directions to your broker, your broker or other nominee will not be able to vote your shares with respect to the election of directors (Proposal 1) or, the non-binding vote to approve named executive officer compensation (Proposal 3) or the non-binding vote to recommend the frequency of future advisory votes on named executive officer compensation (Proposal 4).
Abstentions and broker non-votes will not affect the vote on the election of directors.
An abstention or broker non-vote with respect to the non-binding vote to approve named executive officer compensation (Proposal 3) or the non-binding vote to recommend the frequency of future advisory votes on named executive officer compensation (Proposal 4) will have no effect on the proposal as the abstention or broker non-vote will not be counted in determining the number of votes cast.
Because the vote to ratify the appointment of Ernst & Young LLP (Proposal 2) is considered to be routine, your broker or other nominee will be able to vote your shares with respect to this proposal without your instructions. An abstention will have no effect on this proposal as the abstention will not be counted in determining the number of votes cast.
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We know of no other matters that will be presented at the meeting; however, if other matters do properly come before the meeting, the persons named in the proxy card will vote on these matters in accordance with their best judgment.
If you sign, date and return your proxy card but do not specify how you want to vote your shares, your shares will be voted as recommended by the Board as indicated on the proxy card.
PROPOSAL ONE: ELECTION OF DIRECTORS
Our Articles of Incorporation and Code of Regulations establish the number of directors at no fewer than nine and no more than 18. There are currently nine directors on the Board. At the 20182023 Annual Meeting, the Shareholdersshareholders will consider the election of nine Directors,directors, each to serve a one-year term. Each of the nominees for election is a current Director, other than Robert J. Phillippy. Mr. Phillippy was identified as a director candidate by a non-management director.Director.
As previously disclosed, Richard J. Hipple resigned from the Board, effective as of December 29, 2017. In addition, Joseph P. Keithley, a current member of our Board, is retiring from the Board at the 2018 Annual Meeting. The Company thanks both Mr. Hipple and Mr. Keithley for their valuable service and guidance provided to the Board.
Nominees for Director.
Vinod M. Khilnani
Age: 65 70
Director Since: 2009
Mr. Khilnani was appointed our Non-Executive Chairman of the Board in January 2018. Now retired, Mr. Khilnani was the Executive Chairman of CTS Corporation (electronic components and accessories). Mr. Khilnani became Executive Chairman of CTS Corporation in January 2013 and served in that capacity until May 2013. He had served as Chairman, President and Chief Executive Officer of CTS from 2007 until 2013. Prior to that time, he served as Senior Vice President and Chief Financial Officer of CTS since 2001. Mr. Khilnani was appointed to the Board of Gibraltar Industries in October 2014 and to the Board of ESCO Technologies Inc. (filtration and fluid control products, RF shielding and test equipment, technical packaging, and electric utility solutions) in August 2014 and has served on the Board of Directors of 1st Source Corporation since 2013. As the former Executive Chairman and Chief Executive Officer and President of CTS (and its former Chief Financial Officer), Mr. Khilnani offers a wealth of management experience and business knowledge regarding operational, financial and corporate governance issues, as well as extensive international experience with global operations.
William B. LawrenceEmily M. Liggett
Age: 73Age: 67
Director Since: 2003 2020
Mr. Lawrence previouslyMs. Liggett has served as Non-executive Chairmanthe Chief Executive Officer of Liggett Advisors (business strategy and execution consulting) since 2017. Prior to that, Ms. Liggett served as President and Chief Executive Officer of NovaTorque, Inc. (manufacturer of high-efficiency electric motor systems) from 2009 until 2016, when it was acquired by Regal Beloit; Apexon, Inc. (provider of supply chain optimization software solutions for global manufacturers) from 2004 until 2007; and Capstone Turbine Corporation (provider of microturbine systems for clean, continuous distributed energy generation) from 2002 until 2003. Prior to Capstone Turbine, Ms. Liggett served in various management and executive roles at Raychem Corporation (manufacturer of materials, electronics, telecom and energy products acquired by Tyco International in 1999) from 1984 until 2001, including as Corporate Vice President of Raychem and Managing Director of Tyco Ventures. Ms. Liggett has served on the Board of FerroDirectors of Ultra Clean Holdings, Inc. since 2014 and previously served on the Boards of Directors of Kaiser Aluminum Corporation (performance coatings, performance colorsfrom 2018 until 2022 and glass, pigments, powders, oxide polymers, additivesMTS Systems Corporation from 2010 until 2016. She also served on the Purdue University School of Engineering Advisory Board from 2000 until 2018. Ms. Liggett's expertise in strategy, operations, product development, sales, marketing and specialty plastics)business development gained from her chief executive officer, management and
public company board experience in a variety of international industrial companies provides our Board of Directors with valuable insights.
Robert J. Phillippy
Age: 62
Director Since: 2018
Mr. Phillippy is an independent consultant, advising technology companies on a range of strategic, operational and organizational issues. From September 2007 until April 2016, he was the President, Chief Executive Officer and a director of Newport Corporation (lasers, optics and photonics technologies). Mr. LawrencePhillippy joined Newport in 1996 and served in various executive management positions prior to his appointment as Chief Executive Officer in 2007. In April 2016, Newport was acquired by MKS Instruments (instruments, components, subsystems, and process control solutions for advanced manufacturing applications), and from July 2016 until May 2018, Mr. Phillippy served on the board of directors of MKS Instruments. From April 2016 to September 2016, he also served as Acting Chairman
of the Board of Ferro Corporation from November 2012 until April 2013 and as Chairman from April 2013Executive Advisor to April 2014.MKS Instruments. Mr. LawrencePhillippy has also served as a memberdirector of Ferro's Board from 1999 until April 2015. Prior to the sale of TRW,ESCO Technologies Inc. to Northrop Grumman Corporation in 2002, Mr. Lawrence served as TRW's Executive Vice President, General Counsel and Secretary since 1997 and held various other executive positions at TRW since 1976. Mr. Lawrence's background as the Executive Vice President, General Counsel and Secretary of TRW, Inc.May 2014 and as a director of Kimball Electronics since November 2018. Mr. Phillippy's deep understanding of technology-related industries, extensive experience as the former Chief Executive Officer of a global technology company and significant knowledge of matters impactful to public company boards makes him a valuable contributor to the Board of Directors.
Patrick Prevost
Age: 67
Director Since: 2019
Mr. Prevost served as the President and Chief Executive Officer of Cabot Corporation (global specialty chemical and performance materials company) from January 2008 until his retirement in March 2016. Prior to Cabot, Mr. Prevost served as President, Performance Chemicals at FerroBASF AG (international chemical company) from October 2005 to December 2007. Prior to that, he was responsible for BASF Corporation’s Chemicals and Plastics business in North America. Mr. Prevost previously held senior management positions with increasing responsibility at BP Plc from 1999 to 2003 and Amoco Chemicals from 1983 until 1999. Mr. Prevost serves on the Board of Directors of Southwestern Energy Company and previously served on the Board of Directors of Cabot Corporation provides himand General Cable Corporation. Mr. Prevost also serves as trustee of the New England Conservatory and the French Cultural Center of Boston. Mr. Prevost brings to our Board of Directors substantial leadership experience in a variety of complex international businesses, a chemical engineering background with thebroad experience in material science and chemistry, which are important to our business, extensive experience involving acquisitions and strategic alliances and deep knowledge and experience to address the complex legislative, governanceof international business, strategic planning, manufacturing and financial issues facing global companies today.
matters.
N. Mohan Reddy, Ph.D.
Age: 64 69
Director Since: 2000
Dr. Reddy is B. Charles Ames, Professor of Management at Case Western Reserve University. Dr. Reddy was appointed B. Charles Ames, Professor of Management in February 2014. Prior to that, he had served as the Albert J. Weatherhead III Professor of Management from 2007 until 2012 and as the Dean of the Weatherhead School of Management, Case Western Reserve University from 2006 until 2012. Dr. Reddy had been Associate Professor of Marketing since 1991 and Keithley Professor of Technology Management from 1996 to 2006 at the Weatherhead School of Management, Case Western Reserve University. Dr. Reddy had served on the Board of Directors of Keithley Instruments, Inc. from 2001 until December 2010, when Keithley Instruments was purchased by Danaher Corporation. Dr. Reddy had also served on the Board of Directors of Lubrizol Corporation from February 2011 until October 2011, when Lubrizol was purchased by Berkshire Hathaway Inc. Dr. Reddy also serves as a consultant to firms in the electronics and semiconductor industries, primarily in the areas of product and market development. Dr. Reddy’s knowledge of industrial marketing, technology development and extensive global knowledge in the electronics and semiconductor industries provides valuable insight to our Board of Directors.
Craig S. Shular
Age: 65 70
Director Since: 2008
Mr. Shular is Co-Founder of Global Graphite Group LLC (advanced materials company specializing in graphite products), which he co-founded in November 2017. Mr. Shular is the former Executive Chairman of the Board of GrafTech International Ltd. (electrical industrial apparatus). Mr. Shular was elected Chairman of the Board of GrafTech in 2007 and served in that capacity until December 2014. He had been a director of GrafTech from January 2003 until May 2014. Mr. Shular served as Chief Executive Officer of GrafTech from 2003 and as President from 2002 until he retired from both positions in January 2014. From 2001 until 2002, he served as Executive Vice President of GrafTech’s largest business, Graphite Electrodes. Mr. Shular joined GrafTech as its Vice President and Chief Financial Officer in 1999 and assumed the additional duties of
Executive Vice President, Electrode Sales and Marketing in 2000 until 2001. As the former Chairman, Chief Executive Officer and President and former Chief Financial Officer of GrafTech, Mr. Shular brings a breadth of financial and operational management experience and provides our Board of Directors with a perspective of someone familiar with all facets of a global enterprise.
Darlene J. S. Solomon, Ph.D.
Age: 59 64
Director Since: 2011
Since 2006, Dr. Solomon ishas served as Senior Vice President and Chief Technology Officer of Agilent Technologies, Inc. (life sciences, diagnostics and applied chemical markets). Dr. Solomon has served as Senior Vice PresidentAn expert in the start-up/venture ecosystem, she developed and Chief Technology Officer of Agilent Technologies since 2006.leads Agilent’s corporate venture program. Prior to that time,2006, she served as Vice President and Director of Agilent Laboratories, Agilent's centralized advanced research organization. Dr.Ms. Solomon joined Agilent in 1999 andhas served in a dual capacity ason the directorBoard of the Life Sciences Technologies Laboratory and as the senior director, research and development/technology for Agilent’s Life Sciences and Chemical Analysis business.Directors of Novanta Inc. since 2022. She is a member of the National Academy of Engineering and serves on multiple academic and government advisory boards focused on science, technology and innovation. WithAs a global senior technology business executive with deep experience in corporate governance, transformation, and high-tech industry, she brings valuable perspective in strategy, innovation, and digital leadership in support of core and adjacent business growth. Additionally, with extensive knowledge and experience in materials measurement and leading innovation in a diversified global technology enterprise, Dr. Solomon brings to our Board of Directors valuable insight on research and development and other operational issues faced by companies focused on innovations in technology.
Robert B. Toth
Age: 57 62
Director Since: 2013
Mr. Toth has beenwas a Managing Director of CCMP Capital Advisors, LLC (global private equity investment firm) since January 2016.from 2016 to 2019. Mr. Toth also served as President, Chief Executive Officer and Director of Polypore International, Inc. (high technology filtration products) from 2005 until 2015 and as Chairman of the Board from 2011 until 2015. Prior to Polypore, Mr. Toth served as President, Chief Executive Officer, and Director of CP Kelco ApS. Mr. Toth also spent 19 years at Monsanto Company, and its spin-off company, Solutia Inc., where he held a variety of executive and managerial roles. Mr. Toth serves on the Board of Directors of SPX Technologies. He also servesserved on the Board of Directors of PQ Corporation (producer of specialty inorganic performance chemicals and catalysts), SPX Corporation (a supplier of highly engineered products and technologies, holding leadership positions in the HVAC, detection and measurement, and engineered solutions markets), and Hayward Industries, Inc. (a leading global manufacturer of residential and commercial pool equipment and industrial flow control products).Mr. Toth currently acts as an advisor for several private equity firms. With extensive experience in leading corporations in the manufacturing and specialty materials sector, including his knowledge and skills in senior management, finance and operations, Mr. Toth brings to
our Board of Directors significant insight into the strategic and operational issues facing companies in the advanced materials industry.
Jugal K. Vijayvargiya
Age: 50 55
Director Since: 2017
Mr. Vijayvargiya is President and Chief Executive Officer and member of the Board of Materion Corporation. He joined Materion as President and Chief Executive Officer in March 2017. Prior to joining Materion, Mr. Vijayvargiya had an extensive 26-year international career with Delphi Automotive PLC (leading global technology solutions provider to the automotive and transportation sectors). He most recently led Delphi's Automotive Electronics and Safety segment, a $3 billion global business based in Germany. In this role, Mr. Vijayvargiya served as an officer of Delphi and a member of its Executive Committee. Previously, he attained progressively responsible positions in Europe and North America in product and manufacturing engineering, sales, product line management, acquisition integration and general management. Mr. Vijayvargiya’s broad and diverse experience at Delphi and as Chief Executive Officer of Materion provides significant value to our Board of Directors.
Geoffrey Wild
Age: 61
Director Since: 2011
Mr. Wild is currently the Chief Executive Officer of Atotech (specialty plating chemicals, equipment and services company). Mr. Wild was appointed Chief Executive Officer of Atotech on March 13, 2017. Previously, Mr. Wild had served as Chief Executive Officer and a director of AZ Electronic Materials (specialty chemicals and materials) from 2010 until April 2015 which was acquired by Merck KgAa of Germany in May 2014. From 2008 to 2009, Mr. Wild was President and Chief Executive Officer of Cascade Microtech, Inc. (precision electrical measurement products and services). From 2002 to 2007, Mr. Wild served as Chief Executive Officer of Nikon Precision Inc. He was elected to the Board of Directors of Cabot Microelectronics (polishing slurries and pad supplier to the semiconductor industry) in September 2015 and served on the Board of Directors of Axcelis Technologies, Inc. from 2006 until 2011. Mr. Wild’s substantial knowledge and management experience in the global semiconductor industry, including the role of a supplier of equipment and materials to international customers, deepens our Board of Directors’ insight into the operational issues that global companies face. Additionally, Mr. Wild’s role as a chief executive officer exposes him to international financial and accounting issues.
Robert J. Phillippy
Age: 57
Mr. Phillippy is an independent consultant, advising technology companies on a range of strategic, operational and organizational issues. From September 2007 until April 2016, he was the President, Chief Executive Officer and a director of Newport Corporation (lasers, optics and photonics technology company). Mr. Phillippy joined Newport in 1996 and served in various executive management positions prior to his appointment as Chief Executive Officer in 2007. In April 2016, Newport was acquired by MKS Instruments (instruments, components, subsystems, and process control solutions for advanced manufacturing applications), and since July 2016, Mr. Phillippy has served on the board of directors of MKS Instruments. From April 2016 to September 2016, he also served as Executive Advisor to MKS Instruments. Mr. Phillippy has also served as a director of ESCO Technologies Inc. (filtration and fluid control products, RF shielding and test equipment, technical packaging, and electric utility solutions) since May 2014. Mr. Phillippy's deep experience in technology-related industries would make him a valuable addition to the Board of Directors.
Your Board of Directors unanimously recommends a vote for each of Vinod M. Khilnani, William B. Lawrence,Emily M. Liggett, Robert J. Phillippy, Patrick Prevost, N. Mohan Reddy, Ph.D., Craig S. Shular, Darlene J. S. Solomon, Ph.D., Robert B. Toth, and Jugal K. Vijayvargiya, Geoffrey Wild and Robert J. Phillippy.Vijayvargiya.
If any of these nominees becomes unavailable, it is intended that the proxies will be voted as the Board of Directors determines. We have no reason to believe that any of the nominees will be unavailable. The nominees receiving the greatest number of votes for their election will be elected as directors of Materion Corporation. However, our Board of Directors has adopted a Majority Voting Policy whereby, in an uncontested election, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election is expected to tender his or her resignation following certification of the shareholder vote, subject to a 90-day review process by our Nominating, Governance, and OrganizationCorporate Responsibility Committee and Board of Directors to consider whether the tendered resignation should be accepted. An
abstention or broker non-vote is not treated as a vote “withheld” under our Majority Voting Policy. For additional details on the Majority Voting Policy, see page 9of this proxy statement.
CORPORATE GOVERNANCE; COMMITTEES OF THE BOARD OF DIRECTORSENVIRONMENTAL AND SOCIAL MATTERS
Materion is committed to strong corporate governance, as evidenced by the following practices.
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Board Independence | ü 8 of 9 Director nominees are independent ü Independent Chair of the Board |
Director Elections | ü Commitment to Board refreshment and diversity – 4 new Directors added since the beginning of 2017 ü All standing committee members are independent ü Declassified Board with annual Board election ü Director elections are subject to our Majority Voting Policy, which requires any Director who fails to receive a majority of the votes cast in favor of his or her election to submit his or her resignation to the Board |
Board Practices | ü Stock ownership requirements for nonemployee Directors (4x cash retainer) ü At each Board meeting, the independent Directors have the opportunity to conduct an executive session ü Annual Board, committee and Director evaluation |
Shareholder Rights | ü Limitations on adoption of shareholder rights plan ü Opted out of Ohio Control Shareholder Act |
Other Best Practices | ü Annual advisory vote on our named executive officer compensation ü 5 of 9 Directors are ethnically or gender diverse ü Code of Conduct Policy for Directors, officers and employees ü 2 Audit Committee financial experts ü Audit and Risk Committee receives at least quarterly reports on information technology and cyber risk profile, enterprise cyber program and key enterprise cyber initiatives and annually reviews and recommends our information security policy and information security program to Board for approval ü Nominating, Governance and Corporate Responsibility Committee provides oversight for environmental, social and governance matters, including climate change |
We have adopted a Policy Statement on Significant Corporate Governance Issues and a Code of Conduct Policy in compliance with the New York Stock Exchange (NYSE) and Securities and Exchange Commission (SEC) requirements. These materials, along with the charters of the Audit and Risk, Compensation and Human Capital, and Nominating, Governance, and OrganizationCorporate Responsibility Committees of our Board, which also comply with applicable requirements, are available on our website at https://materion.com, or upon request by any shareholder to: Secretary, Materion Corporation, 6070 Parkland Boulevard, Mayfield Heights, Ohio 44124. We also make our reports on Forms 10-K, 10-Q and 8-K available on our website, free of charge, as soon as reasonably practicable after these reports are filed with the SEC. Any amendments or waivers to our Code of Conduct Policy, Committee Charters and Policy Statement on Significant Corporate Governance Issues will also be made available on our website. The information on our website is not incorporated by reference into this proxy statement or any of our periodic reports.
Director Independence
The NYSE listing standards require that all listed companies have a majority of independent directors. For a director to be “independent” under the NYSE listing standards, the board of directors of a listed company must affirmatively determine that the director has no material relationship with the Company, or its subsidiaries or affiliates, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company, or its subsidiaries or affiliates. Our Board has adopted the following standards, which are identical to those of the NYSE listing standards, to assist in its determination of director independence. A director will be determined not to be independent under the following circumstances:
•the director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer of the Company;
•the director has received, or has an immediate family member who has received, during any 12-month period within the last three years, more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);
•the director (a) is a current partner or employee of a firm that is the Company’s internal or external auditor; (b) has an immediate family member who is a current partner of such a firm; (c) has an immediate family member who is a current employee of such a firm and personally works on the Company’s audit; or (d) was or has an immediate family member who was within the last three years a partner or employee of such a firm and personally worked on the Company’s audit within that time;
•the director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serve or served on that company’s compensation committee; or
•the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1,000,000 or two percent of such other company’s consolidated gross revenues.
Additionally, for purposes of determining whether a director has a material relationship with the Company apart from his or her service as a director, our Board has deemed the following relationships as categorically immaterial:
•the director, or an immediate family member, is a current employee, director or trustee of a tax-exempt organization and the Company’s contributions to the organization (excluding Company matching of employee contributions) in any fiscal year are less than $120,000; or
•the director is a director of a company that has made payments to, or received payments or deposits from, the Company for property, goods or services in the ordinary course of business in an amount which, in any fiscal year, is less than the greater of $1,000,000, or two percent of such other company’s consolidated gross revenues.
Our Board has affirmatively determined that each of our current directors, directors who served as a director during 2017, and director nominees, other than Mr. Vijayvargiya, and Mr. Hipple, areis “independent” within the meaning of that term as defined in the NYSE listing standards;standards and a “non-employee director” within the meaning of that term as defined in Rule 16b-3(b)(3) promulgated under the Securities Exchange Act of 1934 (Exchange Act); and an “outside director” within the meaning of that term as defined in the regulations promulgated under Section 162(m) of the Internal Revenue Code (Code). Additionally Edward F. Crawford, who served as a director during 2017, was "independent" as defined in the NYSE listing standards.
Charitable Contributions
Within the preceding three years, we have not made a contribution to any charitable organization in which any of our directors serves as a director, trustee, or executive officer.
Non-management Directors and Non-Executive Chairman
Our Policy Statement on Significant Corporate Governance Issues provides that the non-management members of the Board will meet during each regularly scheduled meeting of the Board of Directors in executive session. Additional executive sessions may be scheduled by the Non-Executive Chairman or other non-management directors. The Non-Executive Chairman will chair these sessions. Mr. Khilnani was appointed our Non-Executive Chairman in January 2018.
The non-management directors have access to our management as they deem necessary or appropriate. In addition, the Chair of each of the Audit and Risk Committee, Nominating, Governance, and OrganizationCorporate Responsibility Committee and Compensation and Human Capital Committee meets periodically with members of senior management.
In addition to the other duties of a director under our Policy Statement on Significant Corporate Governance Issues, the Non-Executive Chairman, in collaboration with the other independent directors, is responsible for coordinating the activities of the independent directors and in that role will:
•chair the executive sessions of the independent directors at each regularly scheduled meeting;
•determine the timing and structuring of Board meetings;
•establish the agenda for Board meetings, including allocation of time as well as subject matter;
•determine the quality, quantity and timeliness of the flow of information from management to the Board;
•serve as the independent point of contact for shareholders wishing to communicate with the Board other than through management;
•interview all Board candidates and provide the Nominating, Governance, and OrganizationCorporate Responsibility Committee with recommendations on each candidate;
•maintain close contact with the Chairman of each standing committee and assist in ensuring communications between each committee and the Board;
•lead the Chief Executive Officer annual evaluation process; and
•be the ombudsman for the Chief Executive Officer to provide two-way communication with the Board.
Board Communications
Shareholders or other interested parties may communicate with the Board as a whole, the non-executive chairman or the non-management directors as a group, by forwarding relevant information in writing to: Non-Executive Chairman, c/o Secretary, Materion Corporation, 6070 Parkland Boulevard, Mayfield Heights, Ohio 44124. Any other communication to individual directors or committees of the Board of Directors may be similarly addressed to the appropriate recipients, c/o Secretary, Materion Corporation, 6070 Parkland Boulevard, Mayfield Heights, Ohio 44124.
Board Leadership
The Board does not have a policy as to whether the role of Chief Executive Officer and Chairman of the Board should be separate or combined, or whether the Chairman should be a management or non-management director. InCurrently, the recent past, the Board has been structured with a combined Chairman and Chief Executive Officer. In connection with our Chief Executive Officer succession in March 2017, Mr. Vijayvargiya was appointed as our Chief Executive Officer and Mr. Hipple was appointed as our Executiveroles of Chairman of the Board until his retirement atand Chief Executive Officer are split, though in the end of 2017. During 2017,past these roles have been combined. Mr. Hipple and Mr. Vijayvargiya were the only two members of our Board who were not independent. We balanced the fact that our Chairman of the Board was not independent by the appointment of a Lead Director. In January 2018, Mr. Khilnani Lead Director during 2017, was appointed Non-Executive Chairman of the Board effective January 2018, eliminating the need for a Lead Director. During 2020, Mr. Vijayvargiya was the only member of our Board who was not independent.
Unless the Chairman of the Board is an independent director, oura Lead Director iswould be elected solely by the independent members of our Board of Directors. The Lead Director works with the Chairman of the Board and other Board members to provide strong, independent oversight of the Company’s management and affairs as described above under "Non-management Directors and Non-Executive Chairman".
Risk Oversight
Our Board oversees an enterprise-wide approach to risk management, designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance shareholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. The involvement of the full Board in setting the Company’s business strategy is a key part of its assessment of management’s appetite for risk and also a determination of what constitutes an appropriate level of risk for the Company.
While the Board has the ultimate oversight responsibility for the risk management process, various committees of the Board also have responsibility for risk management. In particular, the Audit and Risk Committee focuses on financial risk, including internal controls, and receives an annual risk assessment report from the Company’s internal auditors. The Audit and Risk Committee also focuses on risks relating to precious metal inventory, precious metal security and cybersecurity.
As part of its program of regular oversight, all members of the Audit and Risk Committee are responsible for overseeing cyber risk, information security, and information technology risk, including management’s actions to identify, assess, mitigate, and remediate material cyber issues and risks. The Audit and Risk Committee receives at least quarterly reports from the Chief Information Officer on the Company’s information technology and cyber risk profile, enterprise cyber program, key enterprise cyber initiatives, and significant updates on external audits of our information security program. The full Board attends two of the Audit and Risk Committee meetings at which information technology and cyber risk are discussed. Additionally, at least annually, the full Board attends a cybersecurity training from external experts and reviews and discusses the Company’s technology strategy with the Chief Information Officer and approves the Company’s technology strategic plan.
In addition, management provides a risk
management report, including a financial risk assessment and enterprise risk management update and information technology contingency plan, to the Audit and Risk Committee. In setting compensation, the Compensation and Human Capital Committee strives to create incentives that encourage a level of risk-taking consistent with the Company’s business strategy. Finally, the Company’s Nominating, Governance, and OrganizationCorporate Responsibility Committee conducts an annual assessment of the Board for compliance with corporate governance and risk management best practices.practices and additionally oversees the Company's risk with respect to climate change. The Company believes that the Board’s role in risk oversight is consistent with the Company’s leadership structure, with management having day-to-day responsibility for assessing and managing the Company’s risk exposure and the Board and its committees providing oversight in connection with those efforts, with particular focus on the most significant risks facing the Company.
Audit and Risk Committee
The Audit and Risk Committee held six meetings in 2017.2022. The Audit Committee membership consists of Mr. Wild,Shular, as Chairman, and Messrs. KeithleyMr. Phillippy and ShularDrs. Reddy and Dr. Reddy.Solomon. Under the Audit Committee charter, the Audit Committee’s principal functions include assisting our Board in fulfilling its oversight responsibilities with respect to:
•the integrity of our financial statements and our financial reporting process;
•compliance with ethics policies and legal and other regulatory requirements;
•our independent registered public accounting firm’s qualifications and independence;
•our systems of internal accounting and financial controls; and
•the performance of our independent registered public accounting firm and of our internal audit functions.functions; and
•other matters as deemed appropriate, including our Code of Conduct Policy and our risk management practices and policies.
No member of our Auditthe Committee serves on the audit committee of three or more public companies in addition to ours unless the Board determines that such services would not impair the member's ability to serve on our Auditthe Committee. The Audit Committee also prepared the Audit Committee report included under the heading “Audit Committee Report” in this proxy statement.
Audit and Risk Committee Expert, Financial Literacy and Independence
Our Board has determined that Mr.Messrs. Phillippy and Shular is an Audit Committeeare "audit committee" financial expert,experts, as defined by the SEC. Each member of the Audit and Risk Committee is financially literate and satisfies the independence requirements as set forth in the NYSE listing standards.
Compensation and Human Capital Committee
The Compensation and Human Capital Committee held sevenfive meetings in 2017. Its2022. The Committee membership consists of Dr. Solomon,Mr. Toth, as Chairman, Ms. Liggett, and Messrs. Khilnani Lawrence and Toth.Prevost. Each member of the Compensation Committee has been determined by the Board to be independent in accordance with NYSE listing standards. The Compensation Committee may, at its discretion, delegate all or a portion of its duties and responsibilities to a subcommittee, provided that such subcommittee has a published charter in accordance with NYSE rules. The Compensation Committee’s principal functions include:
•reviewing and approving executive compensation, including severance payments;
•overseeing and recommending equity and non-equity incentive plans;
•overseeing regulatory compliance with respect to compensation matters;
•advising on senior management compensation; and
•reviewing and discussing the Compensation Discussion and Analysis (CD&A) and Compensation Committee Report.
For additional information regarding the operation of the Compensation Committee, see the “Compensation Discussion and Analysis” in this proxy statement.
Nominating, Governance, and OrganizationCorporate Responsibility Committee
The Nominating, Governance, and OrganizationCorporate Responsibility Committee held fourfive meetings in 2017.2022. The Governance and Organization Committee membership consists of Mr. Khilnani, as Chairman, Ms. Liggett, Messrs. Phillippy, Prevost, Shular, and Messrs. Keithley, Lawrence, Shular, Toth and Wild and Drs. Reddy and Solomon. All of the members are independent in accordance with the NYSE listing requirements. The Governance and Organization Committee’s principal functions include:
•evaluating candidates for Board membership, including any nominations of qualified candidates submitted in writing by shareholders to our Secretary;
•making recommendations to the full Board regarding director compensation;
•making recommendations to the full Board regarding governance matters;
•overseeing environmental, social, and governance (ESG) matters significant to the Company, including matters relating to climate change;
•overseeing the evaluation of the Board and management of the Company;
•evaluating potential successors to the Chief Executive Officer for recommendation to the Board and assisting in management succession planning; and
•reviewing related party transactions.
As noted above, the Governance and Organization Committee is involved in determining compensation for our directors. The Governance and Organization Committee administers our equity incentive plans with respect to our directors, including approval of grants of stock options and other equity or equity-based awards, and makes recommendations to the Board with respect to
incentive compensation plans and equity-based plans for directors. The Governance and Organization Committee periodically reviews director compensation in relation to comparable companies and other relevant factors. Any change in director compensation must be approved by the Board. No executive officer other than the Chief Executive Officer in his capacity as director participates in setting director compensation. From time to time, the Governance and Organization Committee or the Board may engage the services of a compensation consultant to provide information regarding director compensation at comparable companies.
Annual Board Self-assessments
The Board has instituted annual self-assessments of the Board, as well as of the Audit and Risk Committee, the Compensation and Human Capital Committee and the Nominating, Governance, and OrganizationCorporate Responsibility Committee, to assist in determining whether the Board and its committees are functioning effectively. Annually, each of the members of the Board completes a detailed survey regarding the Board and its committees that provides for quantitative ratings in key areas and seeks subjective comments. The results of the survey are compiled and discussed at the Board level and in each committee. Any
matters requiring follow-up are identified by the Nominating, Governance, and OrganizationCorporate Responsibility Committee, which is responsible for any action items. Each of the committees also reviews its charter on an annual basis for any changes.
Also annually, each member of the Board completes a confidential evaluation of each other director that, among other things, seeks subjective comments in certain key areas. The responses to the evaluation are collected by a third party and a summary of the responses are conveyed to the Non-Executive Chairman. The Non-Executive Chairman uses the results of the evaluation as part of the process the Nominating, Governance, and OrganizationCorporate Responsibility Committee undertakes in determining whether to recommend that those directors be nominated for re-election. Finally, each member of the Board has completed a confidential competencies questionnaire that is designed to assist in the evaluation of the overall skill set of the members of the Board, which responses were collected by a third party and conveyed to the Governance and Organization Committee, which takes the results into account in assessing the composition of the Board.
Nomination of Director Candidates
The Nominating, Governance, and OrganizationCorporate Responsibility Committee will consider candidates recommended by shareholders for nomination as directors of Materion Corporation. Any shareholder desiring to submit a candidate for consideration by the Governance and Organization Committee should send the name of the proposed candidate, together with biographical data and background information concerning the candidate, to the Nominating, Governance, and OrganizationCorporate Responsibility Committee, c/o Secretary, Materion Corporation, 6070 Parkland Boulevard, Mayfield Heights, Ohio 44124.
In recommending candidates to the Board for nomination as directors, the Governance and Organization Committee’s charter requires it to consider such factors as it deems appropriate, consistent with our Policy Statement on Significant Corporate Governance Issues. These factors are as follows:
•broad-based business, governmental, non-profit, or professional skills and experiences that indicate whether the candidate will be able to make a significant and immediate contribution to the Board’s discussion and decision-making in the array of complex issues facing the Company;
•exhibited behavior that indicates he or she is committed to the highest ethical standards and the values of the Company;
•special skills, expertise and background that add to and complement the range of skills, expertise and background of the existing directors;
•whether the candidate will effectively, consistently and appropriately take into account and balance the legitimate interests and concerns of all our shareholders and other stakeholders in reaching decisions;
•a global business and social perspective, personal integrity and sound judgment; and
•time available to devote to Board activities and to enhance their knowledge of the Company.
Although the Company does not have a formal policy regarding diversity, as
As part of the analysis of the foregoing factors, the Governance and Organization Committee considers whether the candidate enhances the diversity of the Board. Such diversity includes professional background and capabilities, knowledge of specific industries and geographic experience, as well as the more traditional diversity concepts of race, gender and national origin. Additionally, the Board has adopted a diversity policy, which emphasizes that the Board is committed to enhancing its diversity. Pursuant to the diversity policy, in identifying and nominating new candidates for election to the Board, diversity on the Board, including the level of representation of women and under-represented groups, will influence succession planning and be a key criterion for the Committee. It is anticipated that the Committee will assess the effectiveness of the diversity policy as part of its annual self-assessment.
The Governance and Organization Committee’s evaluation of candidates recommended by shareholders does not differ materially from its evaluation of candidates recommended from other sources.
The Governance and Organization Committee utilizes a variety of methods for identifying and evaluating director candidates. The Governance and Organization Committee regularly reviews the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Governance and Organization Committee considers various potential candidates for director. Candidates may come to the attention of the Governance and Organization Committee through current Board members, professional search firms, shareholders or other persons. Additionally, from time to time, the Governance and Organization Committee has used the services of an executive search firm to help identify potential director candidates who possess the characteristics described above. In such instance, the search firm has prepared a biography of each candidate, conducted reference checks and screened candidates.
A shareholder of record entitled to vote in an election of directors who timely complies with the procedures set forth in our code of regulations and with all applicable requirements of the Exchange Act and the rules and regulations thereunder, may also directly nominate individuals for election as directors at a shareholders’ meeting. Copies of our code of regulations are available by a request addressed to Materion Corporation, c/o Secretary, 6070 Parkland Boulevard, Mayfield Heights, Ohio 44124.
To be timely, notice of a shareholder nomination for an annual meeting must be received at our principal executive offices not fewer than 60 nor more than 90 days prior to the date of the annual meeting. However, if the date of the meeting is more than one week before or after the first anniversary of the previous year’s meeting and we do not give notice of the meeting at least 75 days in advance, nominations must be received within ten days from the date of our notice.
Majority Voting Policy
Our Board adopted a Majority Voting Policy whereby, in an uncontested election, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” election, which we refer to as a Majority Withheld Vote, is expected to tender his or her resignation following certification of the shareholder vote. In such an event, the Nominating, Governance, and OrganizationCorporate Responsibility Committee will consider the tendered resignation and make a recommendation to the Board. The Board will act on the Governance and Organization Committee’s recommendation within 90 days following certification of the shareholder vote. Any director who tenders his or her resignation pursuant to this policy will not participate in the Governance and Organization Committee’s recommendation or Board’s action regarding whether to accept or reject the tendered resignation.
However, if each member of the Governance and Organization Committee received a Majority Withheld Vote in the same election, then the Board would appoint a committee comprised solely of independent directors who did not receive a Majority Withheld Vote at that election to consider each tendered resignation offer and recommend to the Board of Directors whether to accept or reject each resignation. Further, if all of the director nominees received a Majority Withheld Vote in the same election, the Board would appoint a committee comprised solely of independent directors to consider each tendered resignation offer and recommend to the Board of Directors whether to accept or reject each resignation.
Director Attendance
Our Board held eightfive meetings in 2017.2022. All of the current directors who were directors in 20172022 attended at least 75% of the Board and assigned committee meetings during 2017.the period each individual served as a director during 2022. Our policy is that directors are expected to attend all meetings, including the annual meeting of shareholders. All of our directors attended last year’s annual meeting of shareholders.
Use of Blank Check Preferred StockESG Matters
For more than 90 years, Materion has helped our customers meet their greatest science and technology challenges. Our Board has adopted a resolutionability to deliver on our mission is rooted, in part, in our strong ESG practices towards our customers, our employees, and our operations and communities. We are committed to ensuring that it will not, without prior shareholder approval, authorize the issuance of any series of preferred stock for any defensive or anti-takeover purpose, for the purpose of implementing any shareholder rights plan orour organization’s governance and operations are fully aligned with features specifically intendedenvironmentally and socially responsible practices. Our ESG approach is structured around three focus areas:
Our Commitment - From our leadership team to make any attempted acquisition of the Company more difficult or costly; provided that, within the limits described above, the Board may authorizeof Directors, strong governance, ethical operations and upholding compliance standards are vital to our organization's continued advancement.
Our People – Materion’s values and corporate culture define who we are, how we act, and what we believe is our responsibility to conducting business. And our diverse employee base, that embodies our culture, is the issuancedriving force behind our success.
Our Operations and Communities – Materion consistently strives to integrate a variety of preferred stock for capital raising transactions, acquisitions, joint ventures or other corporate purposes.
Position Statement on Shareholder Rights Plans
Our Board has adopted a Position Statement on Shareholder Rights Plans. The Position Statement provides that, if the Board adopts a shareholder rights plan, it will do so by action of the majority of its independent directors after careful deliberationsustainability-based initiatives in our own operations and in the exercisecommunities where we operate, from more efficient use of its fiduciary duties,energy and materials to educating our employees on how to better serve as stewards of the planet. We also require our business partners and suppliers to abide by the same responsible business standards and principles.
As noted above, in addition to corporate governance, our Nominating, Governance and Corporate Responsibility Committee oversees environmental and social matters significant to the Company. The Nominating, Governance and Corporate Responsibility Committee’s primary ESG responsibilities include overseeing and periodically reviewing the Company’s ESG strategy, initiatives and risks and opportunities, as well as the evolving ESG regulatory landscape, including, but not limited to, matters relating to climate change. Nominating, Governance and Corporate Responsibility Committee membership currently includes all of our independent directors,ensuring an integrated and aligned oversight approach to the company-wide strategic ESG activities and initiatives. The Nominating, Governance and Corporate Responsibility Committee held five meetings in 2022 and the Board will seek prior shareholder approvalCompany’s ESG initiatives and related matters, including but not limited to, matters relating to climate change, were discussed at each meeting.Executive oversight of environmental and social matters is conducted by management through our ESG Steering Committee, which is composed of leaders from multiple functions including operations, legal, human resources, finance, and purchasing. In addition, environmental and social matters are integrated into our risk oversight and enterprise-wide risk management approach. In support of these broad-based efforts, in 2021 Materion appointed a dedicated ESG leadership position to support ongoing and new ESG-related activities and strategic initiatives globally, including, but not limited to, matters relating to climate change. In early 2022, we further appointed a global sustainability operations manager to support identification and deployment of best-in-class sustainability-focused operational programs, systems and processes across Materion operations globally.
Good corporate citizenship and our commitment to strong ESG practices for our people, our operations and our communities are important elements of our vision, mission and values at Materion. We conduct our business activities in accordance with these values. Additionally, the plan unless, duecore of our business ethics is “doing the right thing.” This fundamental principle is what drives
Materion to time constraints or other considerations,be a socially responsible business that meets the majorityhighest standards of ethics and professionalism. We are committed to:
• Maintaining the independent directors determinehighest standards of health, safety and security;
• Producing materials that it would beenable technologies to provide a safer and more sustainable environment;
• Designing, manufacturing and distributing products in a safe and environmentally responsible manner;
• Respecting and protecting human rights wherever we operate;
• Embracing a set of values where we partner in the best interestbetterment of the Companyour communities; and its
• Continuously promoting fair dealing and respect towards our customers, shareholders, to adopt the rights plan without first obtaining shareholder approval. The Position Statement also provides that if the Board adopts a rights plan without prior shareholder approval, the plan will expire on the first anniversary of its effective date unless prior to such time the plan has been ratified by a vote of the Company’s shareholders, which vote may exclude shares held by any potential acquiring shareholders.employees, business partners and communities.
Opt Out of the Ohio Control Shareholder Act
At our annual meeting of shareholders held in May 2014, our shareholders approved a management-sponsored proposal to amend our Amended and Restated Code of Regulations to opt out of Section 1701.831 of the Ohio Revised Code, which is commonly referred to as the Ohio Control Share Acquisition Act. The Ohio Control Share Acquisition Act generally applies to Ohio public corporations unless a corporation specifically opts out of the statute's application. The Ohio Control Share Acquisition Act generally requires that any "control share acquisition" of an Ohio public corporation can only be made with the prior authorization of shareholders. "Control share acquisitions" are defined to be acquisitions of shares entitling a person to exercise or direct the voting power in the election of directors within any of three separate ranges: (1) one-fifth orFor more but less than one-third of such voting power, (2) one-third or more but less than a majority of such voting power, or (3) a majority or more of such voting power. A person desiring to make a control share acquisition must first deliver notice to the corporation and provide certain information about the acquirerour corporate social responsibility and the proposed acquisition, and the corporation's board of directors must call a special meeting of shareholders to votesustainability program, please see https://materion.com/about/environmental-social-and-governance. The information on the proposed acquisition. Because of the amendment to our Amended and Restated Code of Regulations approvedwebsite is not incorporated by our shareholders, the Ohio Control Share Acquisition Act no longer applies to us.
reference into this proxy statement.
2022 Compensation of Non-Employee Directors
Total compensation of our non-employee directors for the year ended December 31, 2017,2022 was as follows:
| | | | | | | | | | | | | | | | | |
Name | Fees Earned or Paid in Cash ($) | | Stock Awards(1) ($) | | Total ($) |
Vinod M. Khilnani(2) | 140,000 | | | 113,410 | | | 253,410 | |
Emily M. Liggett | 75,000 | | | 113,410 | | | 188,410 | |
Robert J. Phillippy(2) | 75,000 | | | 113,410 | | | 188,410 | |
Patrick Prevost(2) | 75,000 | | | 113,410 | | | 188,410 | |
N. Mohan Reddy | 75,000 | | | 113,410 | | | 188,410 | |
Craig S. Shular(2) | 90,000 | | | 113,410 | | | 203,410 | |
Darlene J. S. Solomon | 75,000 | | | 113,410 | | | 188,410 | |
Robert B. Toth | 85,000 | | | 113,410 | | | 198,410 | |
|
| | | | | | | | |
Name | Fees Earned or Paid in Cash ($) | | Stock Awards(1) ($) | | Total ($) |
Edward F. Crawford(2) | 32,500 |
| | — |
| | 32,500 |
|
Joseph P. Keithley | 70,000 |
| | 79,988 |
| | 149,988 |
|
Vinod M. Khilnani | 100,000 |
| | 79,988 |
| | 179,988 |
|
William B. Lawrence | 70,000 |
| | 79,988 |
| | 149,988 |
|
N. Mohan Reddy | 70,000 |
| | 79,988 |
| | 149,988 |
|
Craig S. Shular(3) | 69,914 |
| | 79,988 |
| | 149,902 |
|
Darlene J. S. Solomon | 75,000 |
| | 79,988 |
| | 154,988 |
|
Robert B. Toth | 70,000 |
| | 79,988 |
| | 149,988 |
|
Geoffrey Wild | 80,000 |
| | 79,988 |
| | 159,988 |
|
(1)The amounts in this column reflect the grant date fair value of time-based restricted stock unit (RSU) awards as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 718.
(2) Mr. Crawford did not stand for re-election at the 2017 annual meetingKhilnani, Mr. Phillippy, Mr. Prevost and is no longer a member of our Board.
(3) Mr. Shular elected to defer 100% of histheir compensation in the form of deferred stock units, in 2017, as described below under Deferred Compensation.
The following table presents the RSU awards granted to non-employee directors in 2017.2022. Awards were made on May 4, 2017,5, 2022 and valued based on the precedingthat day's closing price of $34.30.$81.59. These awards in general will vest on May 4, 2018,5, 2023, if the individual remains as a director until that date. As of December 31, 2017,2022, no other stock or option awards were outstanding for our non-employee directors.
|
| | | | | | | |
Name | | Restricted Stock Units
|
Joseph P. Keithley | | 2,332 |
Vinod M. Khilnani | | 2,3321,390 |
William B. LawrenceEmily M. Liggett | | 2,3321,390 |
Robert J. Phillippy | | 1,390 |
Patrick Prevost | | 1,390 |
N. Mohan Reddy | | 2,3321,390 |
Craig S. Shular | | 2,3321,390 |
Darlene J. S. Solomon | | 2,3321,390 |
Robert B. Toth | | 2,332 |
Geoffrey Wild | | 2,3321,390 |
Annual Retainer Fees
In 2017,2022, non-employee directors receivedan annual retainer fee in the amount of $65,000. Non-employee directors who chair a committeealso received anthe following additional annual retainers: member of Compensation and Human Capital Committee, $5,000 with the exception($15,000 for Chairman, Mr. Toth); member of theAudit and Risk Committee, $5,000 ($20,000 for Chairman, Mr. Shular); member of Nominating, Governance, and Corporate Responsibility Committee, $5,000 ($10,000 for Chairman, Mr. Khilnani); and Chairman of the Compensation Committee (Dr. Solomon), who received an additional $10,000, and the Chairman of the Audit CommitteeBoard, $60,000 (Mr. Wild), who received an additional $15,000. The Lead Director (Mr. Khilnani) received an additional $25,000. Members of the Audit Committee and the Compensation Committee, with the exception of the Chairmen, received an additional $5,000..
Equity Compensation
Under the 2006 Non-Employee Director Equity Plan (Director Equity Plan), non-employee directors who continued to serve as directors following the 20172022 annual meeting of shareholders received $80,000$120,000 worth of RSUs (subject to rounding) which will generally be paid out in common stock at the end of a one-year restriction period. These RSUs were granted on the day following the annual meeting. The number of RSUs granted is equal to $80,000$120,000 divided by the closing price of our common stock on the day of the annual meeting (subject to rounding).
In the event a new director is elected or appointed, common stock may be granted, at the Board's discretion, usually on the first business day following the election or appointment to the Board of Directors. This grant of common stock has typically been equal to $100,000 divided by the closing price of our common stock on the day the director is elected or appointed to the Board of Directors. The grant is expected to be prorated by multiplying such number of shares of common stock by a fraction (in no case greater than one), (1) the numerator of which is one plus the number of full quarters remaining in the calendar year in which such
election or appointment occurs after the date such election or appointment occurs, and (2) the denominator of which is four. The Company does not issue any fractional shares.
Deferred Compensation
Non-employee directors may defer all or a part of their annual retainer fees in the form of deferred stock units under the Director Equity Plan until ceasing to be a member of the Board of Directors or a date specified by the participant. A director may also elect to have RSUs or other stock awards granted under the Director Equity Plan deferred in the form of deferred stock units.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following information is set forth with respect to persons known to management to be the beneficial owners of more than 5% of Materion’s common shares as of December 31, 2017.2022.
| | | | | | | | | | | |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership(1) | | Percent of Class |
BlackRock, Inc. | 3,321,059 | | (2) | 16.2 | % |
55 East 52nd Street | | | |
New York, NY 10055 | | | |
The Vanguard Group | 2,347,204 | | (3) | 11.4 | % |
100 Vanguard Blvd. | | | |
Malvern, PA 19355 | | | |
Dimensional Fund Advisors LP | 1,281,871 | | (4) | 6.2 | % |
6300 Bee Cave Road, Building One | | | |
Austin, TX 78746 | | | |
Capital Research Global Investors | 1,089,822 | | (5) | 5 | % |
333 South Hope Street, 55th Floor | | | |
Los Angeles, CA 90071 | | | |
|
| | | | | |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership(1) | | Percent of Class |
BlackRock, Inc. | 2,732,251 |
| (2) | 13.6 | % |
55 East 52nd Street | | | |
New York, NY 10055 | | | |
The Vanguard Group | 1,927,639 |
| (3) | 9.6 | % |
100 Vanguard Blvd. | | | |
Malvern, PA 19355 | | | |
Dimensional Fund Advisors LP | 1,685,187 |
| (4) | 8.4 | % |
6300 Bee Cave Road, Building One | | | |
Austin, TX 78746 | | | |
GAMCO Investors, Inc. | 1,335,300 |
| (5) | 6.6 | % |
One Corporate Center
| | | |
Rye, NY 10580
| | | |
(1) The information contained in this table, including related footnotes, is based on the Schedule 13G and Schedule 13D filings made by the beneficial owners identified herein.
(2) BlackRock, Inc. has sole investment power over 2,732,2513,289,367 shares and sole voting power over 2,677,5503,321,059 shares.
(3) The Vanguard Group has sole voting power over 22,1010 shares, shared voting power of 1,800over 33,549 shares, sole dispositive power over 1,905,7382,295,680 shares and shared dispositive power over 21,90151,524 shares. The amount beneficially owned totals 1,927,6392,347,204 shares.
(4) Dimensional Fund Advisors LP has sole investment power over 1,685,1871,261,620 shares and sole voting power over 1,618,0101,281,871 shares.
(5) A Schedule 13D/A filed with the SEC on August 17, 2017 indicates that, as of August 16, 2017: (a) Gabelli Funds, LLC hadCapital Research Global Investors has sole investment power and sole voting and dispositive power with respect to 382,300 shares; (b) GAMCO Asset Management Inc. had sole voting and dispositive power with respect to 718,700 shares and sole dispositive power with respect to 777,200 shares; and (c) Teton Advisors, Inc. had sole voting and dispositive power with respect to 175,800over 1,089,822 shares. The Schedule 13D/A further indicates that it was being filed by Mario J. Gabelli and various entities which he directly or indirectly controls or for which he acts as chief investment officer and that he, GSI and certain other entities named therein may be deemed to have beneficial ownership of the shares owned beneficially by each of the foregoing entities as well as certain other persons or entities named therein.
Security Ownership of Directors and Named Executive Officers
The following table sets forth information with respect to the beneficial ownership of Materion Corporation’sthe Company’s common stock by each director and director nominee for election as a director of Materion,the Company, each of the named executive officers and all directors and executive officers as a group, as of January 31, 2018,2023, unless otherwise indicated. The shareholders listed in the table have sole voting and investment power with respect to shares beneficially owned by them, unless otherwise indicated. Shares that are subject to stock appreciation rights (SARs) that may be exercised within 60 days of January 31, 20182023 are reflected in the number of shares shown and in computing the percentage of Materion’s common stock beneficially owned by the person who owns those SARs.
| | | | | | | | | | | |
Name | Number of Shares | | Percent of Class |
Shelly M. Chadwick(2) | 12,179 | | | * |
Gregory R. Chemnitz(2), (3) | 38,788 | | | * |
Vinod M. Khilnani(1) | 33,667 | | | * |
Emily M. Liggett | 4,873 | | | * |
Robert J. Phillippy(1) | 13,290 | | | * |
Patrick Prevost(1) | 9,942 | | | * |
N. Mohan Reddy(1) | 41,945 | | | * |
Craig S. Shular(1) | 51,395 | | | * |
Darlene J. S. Solomon | 24,712 | | | * |
Robert B. Toth | 23,121 | | | * |
Jugal K. Vijayvargiya(2), (3) | 227,843 | | | * |
All Directors and Executive Officers as a group (including the Named Executive Officers (11 persons))(4) | 481,755 | | | 2.3% |
*Less than 1% of Materion's outstanding common stock | | | |
|
| | | | |
Name | Number of Shares | | Percent of Class |
Gregory R. Chemnitz | 26,812 |
| (2) | * |
Richard J. Hipple | 117,244 |
| (2) | * |
Joseph P. Keithley | 38,872 |
| (1) | * |
Joseph P. Kelley | 16,165 |
| (2) | * |
Vinod M. Khilnani | 30,076 |
| (1) | * |
William B. Lawrence | 36,299 |
| (1) | * |
Robert J. Phillippy | 0 |
| | * |
N. Mohan Reddy | 31,788 |
| (1) | * |
Craig S. Shular | 51,145 |
| (1) | * |
Darlene J. S. Solomon | 15,876 |
| | * |
Robert B. Toth | 14,285 |
| | * |
Geoffrey Wild | 18,792 |
| (1) | * |
Jugal K. Vijayvargiya | 10,607 |
| (2) | * |
All Directors, Director Nominees and Executive Officers as a group (including the Named Executive Officers (12 persons)) (4) | 290,717 |
| (3) | 1.4% |
*Less than 1% of Materion's outstanding common stock | | | |
(1)Includes deferred shares under the Director Plan as follows: Mr. Khilnani 18,552, Mr. Phillippy 11,837, Mr. Prevost 9,942, Dr. Reddy 41,945 and Mr. Shular 45,486. | |
(1) | Includes deferred shares under the Director Plan as follows: Mr. Keithley 19,115, Mr. Khilnani 15,942, Mr. Lawrence 30,254, Dr. Reddy 31,788, Mr. Shular 43,519 and Mr. Wild 18,792. |
| |
(2) | Includes shares covered by SARs exercisable within 60 days of January 31, 2018 as follows: Mr. Vijayvargiya 10,607, Mr. Hipple 78,808, Mr. Kelley 15,648 and Mr. Chemnitz 8,485. |
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(3) | Includes an aggregate of 34,740 shares subject to SARs held by executive officers exercisable within 60 days of January 31, 2018 and an aggregate of 159,410 deferred shares held by directors. |
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(4) | Excludes Mr. Hipple since he retired as of December 29, 2017. |
SECTION(2)Includes shares covered by SARs exercisable within 60 days of January 31, 2023 as follows: Mr. Vijayvargiya 140,217, Ms. Chadwick 5,494 and Mr. Chemnitz 9,568.
(3)Includes shares covered by RSUs and PRSUs vesting within 60 days of January 31, 2023 as follows: Mr. Vijayvargiya 32,916, Ms. Chadwick 1,068 and Mr. Chemnitz 6,760.
(4)Includes an aggregate of 196,022 shares subject to SARs/RSUs held by executive officers exercisable/vesting within 60 days of January 31, 2023 and an aggregate of 127,293 deferred shares held by directors.
Delinquent Section 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEReports
Section 16(a) of the Exchange Act requires that certain of our officers, our directors officers and persons who beneficially own more than 10% of a registered class of our common stock toequity securities file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Directors, officersThe SEC has established specific due dates for these reports and greater than 10% shareholderswe are required by SEC regulations to furnish us with copies of all Forms 3, 4 and 5 theydisclose in this proxy statement any known late filings or failures to file.
Based solely on our review of copies of forms that we have received,Section 16 reports filed electronically with the SEC and written representations by our directors, officersfrom certain reporting persons, we believe that during 2022 and greater than 10% shareholders,for prior years, all of our directors, officers and greater than 10% shareholders complied with allSection 16(a) filing requirements applicable to themthose officers, directors and 10% shareholders were satisfied, except that, due to administrative error, (1) for each of Messrs. Vijayvargiya and Chemnitz: (a) one Form 4, reporting one transaction relating to the grant of restricted stock units was filed one day late; and (b) one amended Form 4, reporting one transaction relating to the vesting of restricted stock units was filed to correct disclosure on the initially filed Form 4, and (2) for John Zaranec, our Chief Accounting Officer, (a) his Form 3 required in connection with respecthis promotion was filed late and (b) one Form 4, reporting three transactions relating to transactions in our equity securities duringadditional restricted stock units acquired upon the fiscal year ended December 31, 2017.
reinvestment of dividend equivalents, was filed late.
RELATED PARTY TRANSACTIONS
We recognize that transactions between any of our directors or executive officers and us can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our shareholders. Pursuant to its charter, the Nominating, Governance, and OrganizationCorporate Responsibility Committee considers and makes recommendations to the Board with regard to possible conflicts of interest of Board members or management. The Board then makes a determination as to whether to approve the transaction.
The Governance and Organization Committee reviews all relationships and transactions in which Materion Corporation and its directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. Our Secretary is primarily responsible for the development and implementation of processes and controls to obtain information from the directors and executive officers with respect to related person transactions in order to enable the Governance and Organization Committee to determine, based on the facts and circumstances, whether Materion or a related person has a direct or indirect material interest in the transaction. As set forth in the Governance and Organization Committee’s charter, in the course of the review of a potentially material-relatedmaterial related person transaction, the Governance and Organization Committee considers:
•the nature of the related person’s interest in the transaction;
•the material terms of the transaction, including, without limitation, the amount and type of transaction;
•the importance of the transaction to the related person;
•the importance of the transaction to Materion;
•whether the transaction would impair the judgment of a director or executive officer to act in the best interest of Materion; and
•any other matters the Governance and Organization Committee deems appropriate.
Based on this review, the Governance and Organization Committee will determine whether to approve or ratify any transaction which is directly or indirectly material to Materion or a related person.
Any member of the Governance and Organization Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote with respect to the approval or ratification of the transaction; however, such director may be counted in determining the presence of a quorum at a meeting of the Governance and Organization Committee that considers the transaction. There were no related party transactions in 2022.
AUDIT COMMITTEE REPORT
The Audit and Risk Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the Company’s systems of internal controls. In fulfilling its oversight responsibilities, the Audit and Risk Committee reviewed the audited financial statements in the annual report with management, and discussed with management the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.
The Audit and Risk Committee has discussed with the independent registered public accounting firm the matters required to be discussed by the statementapplicable requirements of Auditing Standard 1301: Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board.Board and the SEC. The Audit and Risk Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit and Risk Committee concerning independence, and has discussed with the independent registered public accounting firm the independent registered public accountingsuch firm’s independence.
The Audit and Risk Committee discussed with the Company’s internal auditors and the independent registered public accounting firm the overall scope and plans for the respective audits. The Audit and Risk Committee meets with the internal auditors and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The Audit and Risk Committee held six meetings during 2017.2022.
In reliance on these reviews and discussions, the Audit and Risk Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 20172022 for filing with the SEC.
The current Audit and Risk Committee charter is available on our website at https://materion.com.
Geoffrey Wild
Craig S. Shular (Chairman)
Joseph P. KeithleyRobert J. Phillippy
N. Mohan Reddy
Craig S. ShularDarlene J.S. Solomon
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (CD&A) provides an overview of our executive compensation program and 20172022 pay determinations for our named executive officers (NEOs), as shown below:
Named Executive Officers
Jugal K. Vijayvargiya, President and Chief Executive Officer
Richard J. Hipple, Executive Chairman (and prior President and Chief Executive Officer)
Joseph P. Kelley,Shelly M. Chadwick, Vice President, Finance and Chief Financial Officer
Gregory R. Chemnitz, Vice President, General Counsel and Secretary
Effective March 3, 2017, Jugal K. Vijayvargiya was appointed President and Chief Executive Officer of the Company, replacing Richard J. Hipple who was appointed Executive Chairman of our Board of Directors.
This CD&A consists of the following three sections:
Section I: Executive Summary - 20172022 in Review
Section II: Executive Compensation Program Overview
Section III: Details and Analysis of the 20172022 Executive Compensation Program
Section I: Executive Summary - 20172022 in Review
Materion Corporation has a long-standing and strong commitment toward pay-for-performance in its executive compensation programs.program. We maintain this orientation throughout economic cycles that may cause fluctuation in our operating results.
We believe the decisions regarding our NEO compensation program in 20172022 described in the CD&A below reflect our ongoing commitment to sustaining our pay-for-performance philosophy.
20172022 Company Performance Overview(1)
The Company delivered strong sales and profit growthrecord results in 2017 driven by performance improvements across the business. Net2022 with net sales of $1,139.4 million in 2017 increased 18% compared to $969.2 million in 2016. Value-added sales, a financial measure which is not prepared under generally accepted accounting principles (GAAP)(1), were $677.7 million in 2017,$1.7 billion, an increase of 13% year-over-year versus 2016 value-added16% from 2021 driven by organic sales growth across most major end markets, as well as a full year of $599.9 million. Excluding value-added sales related to the November 1st, 2021 acquisition of Heraeus’ high-performance target materials business (HTB) of $36.5 million in 2017, the base businessHCS-Electronic Materials. The Company’s profits also grew at a robust rate of 7%substantially compared to 2016 due to improvements in commercial execution, record new product sales,2021 as a result of the increased demand, improved pricing and strong end market demand. New product sales increased 29% in 2017operating performance. Operating profit for 2022 was $119.8 million as compared to 2016 and represented 16% of total value-added sales in 2017.
The Company reported operating profit of $38.6$77.1 million in 20172021, an increase of over 55%.
Value-added sales is a non-GAAP financial measure that removes the impact of pass through metal costs and allows for analysis without the distortion of the movement or volatility in metal prices and changes in mix due to customer-supplied material. Internally, we manage our business on this basis, and a reconciliation of net sales, the most directly comparable GAAP financial measure, to value-added sales is included herein in Appendix A. Value-added sales of $1,114.4 million(2) in 2022 were up 34% compared to $27.12021. The increase was due to strong demand across all of our markets, our ability to capitalize on new business opportunities, and the successful integration of the HCS-Electronic Materials acquisition.
Net income was $86.0 million, or $4.14 per share, diluted, in 2016. Excluding2022, compared to $72.5 million, or $3.50 per share in 2021. Adjusted net income (excluding acquisition amortization) per diluted share was $5.27 in 2022, compared to $4.06 in 2021 driven by the factors impacting operating profit. Adjusted EBIT is a non-GAAP financial measure that removes interest, tax and depreciation and amortization expense from net income and also excludes special items related to CEO transition costs, cost reduction initiatives, legacy environmental costs, and mergermergers and acquisition costs, adjusted operating profit(1)restructuring costs, and additional start up resources and scrap. Adjusted EBIT for 2022 totaled $47.4$142.6 million, compared to $99.4 million in 2017,2021, an increase of 29% comparedover 43% driven by the items mentioned above related to $36.8 million in 2016. Commercialthe growth of operating profit year over year. Through delivering above market growth and operational improvements droveexcellence, the year-over-year increaseCompany delivered records in operating profit.value-added sales, adjusted EBIT, and adjusted EPS in 2022.
The Company also generated strong cash flow from operations of $67.8 million in 2017 and ended the year with $41.8 million of cash and only $3.8 million of total debt.
The Company generated a total shareholder return (including stock price appreciation plus dividends)strong operating cash flow of 24% for 2017.$116.0 million in 2022 and maintains more than adequate liquidity while still investing in organic and inorganic growth in 2022.The Company has borrowing capacity of $185.3 million as of December 31, 2022.
(1) See Appendix A for a definition of value-added sales and a reconciliation of Non-GAAPnon-GAAP to GAAP financial measures.
(2) The value-added sales reflect the amounts presented in the Company’s Current Report on Form 8-K furnished to the SEC on March 22, 2023.
Key Financial and Strategic Highlights for 2017
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| We delivered record net income and adjusted EBIT of $86.0 million and $142.6 million, respectively |
Ÿ | Value-added sales of $677.7Adjusted net income excluding acquisition amortization for 2022 was $109.5 million, in 2017 an increase of 13% compared to $599.9 million in 2016or a record $5.27 per share, diluted |
Ÿ | CumulativeReported strong operating cash flow of $116.0 million for 2022 and ended the year with meaningful available liquidity to support growth initiatives and shareholder return on our common shares for 2017 was 24%, compared to 14% for the Russell 2000 Index and 10% for the S&P SmallCap 600 - Materials Indexreturns |
Ÿ | Increased quarterly dividend for a fifthtenth consecutive year to $0.40 per share on an annual basis and returned $9.0$10.2 million to shareholders in the form of dividends and common share repurchases |
Ÿ | Strong operating cash flow of $67.8 million for 2017 and ended the year with $41.8 million in cash and only $3.8 million in total debt |
Chief Executive Officer Planned Leadership Succession
On March 3, 2017, Mr. Vijayvargiya was appointed President and Chief Executive Officer of the Company, replacing Richard J. Hipple who was appointed Executive Chairman of our Board of Directors.
Mr. Hipple joined the Company in 2006 and as part of the Board’s planned leadership succession served as Executive Chairman until his retirement on December 29, 2017. Under Mr. Hipple’s leadership, Materion significantly transformed from its origins as a traditional mining and metals-focused producer into a leading, global advanced materials company, focused on growth markets and underpinned by a strong balance sheet.
Mr. Vijayvargiya had an extensive 26-year international career with Delphi Automotive PLC (now known as Aptiv PLC), a leading global technology solutions provider to the automotive and transportation sectors. From 2012 to 2016, he led Delphi’s Automotive Electronics and Safety segment, a $3 billion global business based in Germany. In this role, he served as an officer of Delphi and a member of its Executive Committee. Previously, Mr. Vijayvargiya served in progressively responsible positions in Europe and North America in product and manufacturing engineering, sales, product line management, acquisition integration and general management.
Mr. Vijayvargiya’s extensive experience made him ideally suited to drive the focused execution and acceleration of Materion’s growth and profitability. In conjunction with Mr. Vijayvargiya’s appointment to President and Chief Executive Officer, the Board approved an annual target compensation package that consists of a base salary of $700,000, a target Management Incentive Plan opportunity of 90% of his base salary, and a 2017 long-term incentive (LTI) annual target grant value of $1,600,000 to be divided equally between Performance-based Relative Total Shareholder Return (RTSR) Restricted Stock Units, Performance-based Return on Invested Capital (ROIC) Restricted Stock Units, Stock Appreciation Rights, and time-based Restricted Stock Units. The Board believed it was important to establish a target annual pay mix weighted heavily towards long-term incentives and performance-based pay like our other NEOs. In recognition of the value of the equity compensation forfeited by Mr. Vijayvargiya when he resigned from Delphi, the Compensation Committee approved a sign-on bonus of $1,400,000 that is non-forfeitable as to one-third of the amount on March 3, 2018 and two-thirds of the amount on March 3, 2019. Full details of Mr. Vijayvargiya’s compensation and benefits are described in Section III; Details and Analysis of the 2017 Executive Compensation Program, page 24.
Summary NEO Compensation Decisions and Actions in 2017
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Factors Guiding NEO Compensation Decisions | Ÿ | Market compensation rates, including within Materion's compensation peer group, for each position |
| Ÿ | Company's performance against pre-established goals |
| Ÿ | Experience, skills and expected future contributions and leadership |
| Ÿ | Contributions and performance of each individual |
20172021 NEO Compensation Decisions (see below for details)
| Ÿ | Target Total Direct Compensation: The target total direct compensation for Ms. Chadwick and Messrs. Hipple,Vijayvargiya, and Chemnitz and Kelley in 20172022 was 3.0% and 1.6% lower and 4.7% higher than 2016, respectively. The target total direct compensation is managed within 20% of the market median. In 2017 the target total direct compensation for Messrs. Vijayvargiya and Kelley was 15% lower than the market median and for Mr. Chemnitz 17% higher than the market median. Mr. Hipple’s target total direct compensation did not change upon being appointed Executive Chairman on March 3, 2017. |
| Ÿ | Base Pay: NEO salary increases were 2.0%6.25% for Mr. Hipple, 8.15%Vijayvargiya, 6.33% for Ms. Chadwick and 4.97% for Mr. Kelley and 2.75% for Mr. Chemnitz. |
| Ÿ | Management Incentive Plan (MIP): Payout under the MIP was based on Company adjusted operating profit andEBIT, value-added sales growth, and simplified free cash flow performance versus goals. The Company achieved 179.4% of107.0% funding for its adjusted operating profit target and 200% ofEBIT component, 150.2% funding for its value-added sales target,growth component and 200.0% funding for its simplified free cash flow component, resulting in MIP awards generally at approximately 182.5%127.4% of target for our NEOs. |
| Ÿ | Long-term Incentives (LTI): The Committee determined 20172022 equity grants after carefully considering (1) the Company's 20162021 performance, (2) comparative market pay practices and (3) our performance-driven compensation philosophy. In 2017,2022, shareholder value creation is achieved through performance-based grants represented aboutrepresenting approximately 75% of the overall target equity opportunities for Messrs.Mr. Vijayvargiya, and Hipple, and 60% of the overall target equity opportunities for Messrs. Kelley and Chemnitz. The target equity opportunity (as a percent of base salary) for Mr. HippleMs. Chadwick and Mr. Chemnitz was reduced by 10% and remained unchanged for Mr. Kelley.Chemnitz. |
2017 NEO Compensation Program Design Changes | Ÿ | As part of several cost containment measures taken in 2017, the target long-term equity opportunity (as a percent of base salary) for Messrs. Hipple and Chemnitz was reduced by 10%. In addition, to better align with market practice, the performance-based LTI components (PRSUs and SARs) were reduced from 75% to 60% of the total target LTI opportunity for Messrs. Kelley and Chemnitz.
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Shareholder Advisory Vote Consideration | Ÿ | At our 20172022 annual meeting of shareholders, we received approximately 96%93% approval from our shareholders, based on the total votes counted, for our annual advisory "Say-on-Pay" proposal to approve the compensation of our NEOs. The Committee considered these voting results at its meetings after the vote, and while it believes the voting results demonstrate significant support for our overall executive compensation program, the Committee remains dedicated to continuously improving the existing executive compensation program and the governance environment surrounding the overall program. The Committee did not make any changes to its compensation policies and practices that were specifically driven by the results of the Say-on-Pay vote. |
Other Changes in Prior Years
In addition to the above compensation program design changes made in 2017, theThe Committee has made a number of other executive pay and related corporate governance changes over the past several years to further align our executive compensation program with market competitive best practices. Specifically, the Committee:
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Compensation Program Design | Ÿ | Established stock ownership and retention guidelines for the NEOs and non-employee directors to further promote long-term equity ownership, and in 2022, discontinued the recognition of unexercised vested and unvested SARs as stock ownership. |
| Ÿ | Introduced a value-added salessimplified free cash flow (SFCF) metric (defined as sales less the cost of gold, silver, platinum, palladiumamount equal to earnings before interest and copper)taxes plus depreciation and amortization, plus or minus the change in working capital minus capital investments), in addition to the existing operating profit measure,earnings before interest and taxes and value-added sales growth metrics, within our annual MIP to allow for aprovide more meaningful assessment of our performance.focus on continually improving the Company’s return on invested capital. |
| Ÿ | In 2020, we replaced operating profit with EBIT as one of the three key metrics for our annual MIP. The EBIT metric increases focus on the performance of the Company's core operations excluding tax expenses and the costs of the capital structure influencing profit. |
| | Put more stock and compensation at risk by increasing the weighting onof the PRSUsPerformance Restricted Stock Units (PRSUs) to, typically, between 40% and 50% (from 33% in 2012) of the total target LTI award mix for our NEOs. The LTI program for 20172022 had four components, comprised ofincluding stock appreciation rights (SARs), PRSUs tied to our Relative Total Shareholder Return (RTSR) (RTSR PRSUs), PRSUs tied to our absolute Return On Invested Capital (ROIC) (ROIC PRSUs) and time-based restricted stock units (RSUs).RSUs. Including all PRSUs and SARs, typically 60% orto 75% of the total target LTI award mix for our NEOs is “at risk.”
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| Ÿ | Eliminated all executive perquisite programs, other than periodic executive physicals, for the NEOs. |
| Ÿ | Moved timing of annual base salary increase reviewsEffective December 31, 2019, the Materion Corporation Pension Plan (the Pension Plan) was amended, freezing the accrued benefit for NEOs fromall participants.Beginning January 1, 2020, the Materion Corporation Retirement Savings Plan (401(k) Plan) was enhanced, providing participants with a Company matching contribution of $1.00 for each dollar they elect to late Marchcontribute up to align the Company’sfirst 4% of compensation deferred, and an annual merit review processnon-elective contribution ranging from 1.5% to 2.5% of each employee’s annual eligible earnings based on their age.Both the Company match and the annual non-elective contribution are subject to the applicable annual Internal Revenue Code (Code) limitation. |
| | In conjunction with freezing the Pension Plan, the Materion Corporation Supplemental Retirement Benefit Plan (SRBP) was amended, freezing the accrued benefit for all other U.S.-based employees.participants, effective December 31, 2019. |
Corporate Governance | Ÿ | Eliminated the "modified single trigger" provision from all future severance agreements with new executives. |
| Ÿ | Allowed the excise tax gross-up provisions in existing severance agreements to expire in 2012 and excludedid not include gross-up provisions fromin any new agreements. |
| Ÿ | Implemented a "double trigger" change in control vesting provision for all new equity grants, beginning in 2011, which provides that outstanding equity grants will vest on an accelerated basis either if the awards are not continued, assumed or replaced upon the occurrence of a change in control or if the executive experiences a subsequent qualifying termination of employment. The change in control beneficial ownership percentage trigger was also increased to 30%. |
| Ÿ | Implemented a formal clawback policy that goes beyond the existing provisions contained in our equity award agreements and mandates of theThe Sarbanes-Oxley Act of 2002. IfWe expect in 2023 to review and whenrevise the clawback policy in connection with final regulations for clawbacks arerules regarding recovery of erroneously awarded compensation as promulgated by the SEC and the NYSE under the Dodd-Frank Wall Street Reformin 2022 and Consumer Protection Act (Dodd-Frank Act), we will modify our policy accordingly to ensure compliance with such new regulations.2023, respectively. |
Section II: Executive Compensation Program Overview
Compensation Philosophy and Objectives
Our long-standing compensation philosophy has three key objectives:
•Attract, motivate and help retain key executives with the ability to profitably grow our business portfolio;
•Build a pay-for-performance environment with total pay levels targeted at the competitive market median; and
•Provide opportunities for share ownership to align the interests of our executives with our shareholders.
Primary Components of the NEO Compensation Program for 20172022
To achieve these objectives, our NEO compensation program includes the following primary components:
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Component | | Purpose / Objective | | Performance Linkage | | Form of Payout |
Base Salaries | | Provide a fixed, competitive level of pay based on responsibility, qualifications, experience and performance | | Moderate: merit increases are based on individual performance | | Cash |
Short-term Cash Incentives (MIP) | | Align variable pay with short-term performance in support of our annual business plan and strategic objectives | | Strong: awards are tied to pre-established financial goals | | Cash |
Long-term Incentives (LTI) including: SARs, PRSUs and RSUs | | Align variable pay with longer term, sustained performance and shareholder value creation; enhance executive retention and provide an equity stake to further align with shareholder interests | | Strong: PRSUs typically represent about 40% - 50% of the total target award opportunity, and, including SARs (the value of which is tied to stock price appreciation), about 60 - 75% of total target LTI is “at risk”. | | SARs, and RSUs are payable in shares.and PRSUs are payable in shares for payouts up to target and in cash above target |
Health, Welfare and Retirement Benefits | | Provide for competitive health, welfare and retirement needsbenefits and enhance executive retention. NEOs are also eligible for periodic executive physicals, but no other perquisites are provided | | None | | Retirement benefits are payable in cash following qualifying separation from service |
Target Total Pay Mix
Due to our pay-for-performance philosophy, the Committee has set base salaries as a relatively small part of target total paycompensation for the NEOs and has provided a significant portion of target total pay for the NEOscompensation in the form of equity-based LTI, consisting of grants of SARs, PRSUs and RSUs that align NEOs' interests with those of our shareholders.In 2017,2022, performance-based LTI grants represented about 60% toapproximately 75% of the total target equity opportunitiesopportunity offered to our NEOs.Mr. Vijayvargiya and approximately 60% for Ms. Chadwick and Mr. Chemnitz.
The following charts summarize the target total paycompensation mix for our current and prior CEO and the average target total paycompensation mix for our other NEOs:
As shown above, the majority of the CEO's target total paycompensation mix is tied to variable, performance-based incentives, with considerable emphasis on equity-based LTI. Overall, the charts illustrate the following:
•Long-term incentives represent 54%57% of the target total paycompensation mix for our current CEO, with 46%43% of the target total paycompensation mix provided in the form of cash-based, short-term pay (the combination of salary and target MIP);
•Long-term incentives represent 39%44% of the average target total paycompensation mix for our other two NEOs with the remaining 61%56% provided in the form of cash-based short-term pay; and
•Performance-based paycompensation (the combination of target MIP, SARs and PRSUs) is approximately 63%66% of target total paycompensation for our current CEO and averages over 47%48% of target total paycompensation for our other two NEOs, versus fixed paycompensation (salary and time-based vesting RSUs) of about 37%34% and 53%52%, respectively.
Our Commitment to Sound Corporate Governance
The Committee works to ensure that our executive compensation program adheres to sound corporate governance and market competitive best practices. The following table highlights our shareholder-friendly corporate governance practices:
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| What We DO | | What We DON'T DO |
Ÿ | Target pay mix places primary emphasis on variable incentives to align paycompensation with performance. | Ÿ | No single trigger acceleration provisions in the event of a change in control for cash severance or equity awards. |
Ÿ | Incentives are tied to pre-established, objective goals, with no payouts for below-threshold performance. | Ÿ | No excessive benefits orand no NEO perquisites, other than periodic executive physicals. |
Ÿ | Majority of LTI awards are “at risk”, typically with about40% to 50% based oncomprised of PRSUs tied to three-year performance goals. | Ÿ | No excise or other tax gross-ups in current or future NEO employment or severance agreements. |
Ÿ | NEOs are subject to mandatory stock ownership guidelines along with stock holding requirements. | Ÿ | No repricing of SARs or stock options without prior shareholder approval. |
Ÿ | Incentive awards to NEOs are subject to a formal clawback policy. | Ÿ | No multi-year guarantees for salary increases, bonuses, incentives, or equity grants. |
Ÿ | NEO paycompensation is initially targeted in the median range of our peer group and third-party general industry surveys for all elements of compensation, including base salary, target MIP opportunities and target LTI awards. | Ÿ | No dividend equivalents or dividends paid on unearned PRSUs. |
| | Ÿ | No share hedging or pledging activities. |
The Compensation and Human Capital Committee and its Role in Determining NEO PayCompensation
The Committee is responsible for the design and oversight of our executive compensation programs covering NEOs, including the Executive Chairman.CEO. All of the members of the Committee are independent, non-employee directors as defined by the rules of the NYSE. The Committee makes policy and strategic recommendations to the Board of Directors (Board) and has authority delegated from the Board to, among other things:
•Implement executive paycompensation decisions;
•Design the base pay,compensation, incentive paycompensation and benefit programs for the NEOs;
•Assess and address any inherent risks in executive and employee compensation programs;
•Oversee the equity incentive plans; and
•Oversee the administration of our stock ownership guidelines.
The Committee met sevenfive times in 20172022 and mostall meetings included an executive session during which management was not present. In addition, the Committee acted by written consent once. Most compensation decisions are finalized in the first quarter of each fiscal year. The Committee charter, which sets forth the Committee's responsibilities on a more comprehensive basis, is available under the “Corporate Governance” tab at http://materion.com and is reviewed on an annual basis to ensure it continues to satisfy changing corporate governance requirements and expectations.
The Committee considers market information and advice provided byrelies on an independent compensation consultant, (Frederic W.FW Cook, & Co., Inc. (FW Cook))for advice, data, and other advisors.market information regarding the CEO’s compensation. It also reviews business documents such as budgets, financial statements, and management reports ofon our business activities, as well as individual performance assessments, in making its decisions. Additionally, it considers other factors, such as the experience, skill setsFW Cook presents a detailed recommendation on all compensation elements for review and contributions ofdiscussion resulting in a formal decision on each NEO toward our overall success.compensation element. The Committee receives input from the CEO, working with respect to salaries, incentives and total payFW Cook, provides a similar recommendation for the other NEOs and input fromexecutives for whom the other NEOs for other executives who are part of the Committee's responsibility. However, all compensation decisions for these individuals are ultimately made bycommittee has oversight. This recommendation is also presented, reviewed, and discussed, with the Committee, and allresulting in a final compensation decisionsdecision for the CEO and Executive Chairman are made by the Committee. In addition, the Committee reviews compensation element values and totals, primarily to identify any competitive issues, gain an understanding of the relative dollar values of each compensation element and to understand the magnitude of total compensation.executive.
The Role of Management in Providing Input on Executive PayCompensation to the Committee
Management provides periodic updates to the Committee regarding business performance and forecasts. Management also provides input on incentive compensation plan performance goals, based on the annual business plan approved by the Board. As noted above, NEOs also provide individual performance assessments andCEO base salary recommendations for theirhis direct reports whose paycompensation is subject to Committee oversight.
The Role of the Independent Compensation Consultant and Other Independent Advisers to the Committee
In determining compensation elements and performance goals for the NEOs, the Committee relies on several resources, including the services of an independent compensation consultant as well as other independent advisers who are periodically retained independent advisers. retained.In 2017,2022, the Committee again engaged FW Cook to serve as its independent compensation consultant.
FW Cook works directly for the Committee (and not on behalf of management) and assists the Committee in evaluating our executive compensation program, including peer group composition, competitive benchmarking, program design and staying abreast of market practices and trends.
For 2017,2022, the Committee assessed the independence of FW Cook, as required under NYSE listing rules. The Committee also considered and assessed all relevant factors, including but not limited to those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act, that could give rise to a potential conflict of interest with respect to FW Cook's work. Based on the review, we are not aware of any conflict of interest that has been raised by the work performed by FW Cook.
How PayCompensation is Set: Peer Group Companies
For 20172022, compensation determinations and assessments were made primarily against a comparison group of 19 public companies in the steel/metals & mining, specialty/commodity chemicals, and semiconductor/electronics industries as selected by FW Cook and approved by the Committee. FW Cook reviews and updates the comparison group for continued appropriatenesssuitability based on industry and company size, utilizingfocusing on companies with annual revenues greater than $300 million and within a reasonable size range in various metrics such as revenues,including operating income, total assets, total equity, total employees and market capitalization.capitalization within a comparable range to those of the Company. The comparison group selection criteria are also based onconsiders companies that have similar business characteristics. The comparison group is the same peer group usedintended for determining long-term incentive RTSR PRSU award PRSU TSR payouts.compensation for awards granted in 2022. The following companies were included in the 2016 comparison group used to assist with setting 2022 target compensation:
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| Composite Percentile Rank(1) | |
Company Name | Size(2) | Profitability(3) | Growth(4) | TSR(5) | Ticker |
Amtel Corporation | 69% | 32% | 24% | 72% | ATML |
Cabot Corporation | 89% | 11% | 24% | 53% | CBT |
Carpenter Technology Corp. | 82% | 49% | 50% | 14% | CRS |
Castel (A.M.) & Co. | 8% | 1% | 0% | 0% | CAS |
Chemtura Corporation | 72% | 91% | 40% | 72% | CHMT |
Coherent, Inc. | 52% | 82% | 67% | 72% | COHR |
CTS Corporation | 20% | 31% | 40% | 78% | CTS |
Entegris, Inc. | 68% | 59% | 66% | 72% | ENTG |
Ferro Corporation | 52% | 77% | 38% | 75% | FOE |
Haynes International, Inc. | 16% | 47% | 62% | 31% | HAYN |
II-VI Incorporated | 52% | 66% | 69% | 67% | IIVI |
Integrated Device Tech., Inc. | 49% | 83% | 81% | 97% | IDTI |
Kemet Corporation | 32% | 11% | 46% | 6% | KEM |
Kraton Performance Polymers | 30% | 22% | 25% | 31% | KRA |
Materion Corporation | 32% | 42% | 59% | 43% | MTRN |
Minerals Technologies Inc. | 80% | 65% | 69% | 39% | MTX |
Olympic Steel Inc. | 21% | 11% | 19% | 17% | ZEUS |
PolyOne Corporation | 85% | 74% | 71% | 64% | POL |
Quaker Chemical Corporation | 33% | 79% | 59% | 64% | KWR |
Rogers Corporation | 38% | 59% | 52% | 28% | ROG |
(1) Data - 2015 data was the latest data available when the FW Cook analysis was prepared in 2016.
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(2)Balchem Corporation | Size - Refers to the peer company’s average percentile rank relative to the group in revenue, assets, equity and employees.Kraton Performance Polymers, Inc. |
Carpenter Technology Corp. | Methode Electronics Inc. |
Coherent, Inc. | Minerals Technologies Inc. |
Compass Minerals | Olympic Steel Inc. |
CTS Corporation | Quaker Chemical Corporation |
Entegris, Inc. | Rayonier Advanced Materials, Inc. |
Ferro Corporation | Rogers Corporation |
Glatfelter Corp. | Schweitzer-Mauduit International, Inc. |
Haynes International, Inc. | Suncoke Energy, Inc. |
Innospec Inc. | |
| |
(3) | Profitability - Refers to the peer company’s average percentile rank relative to the group in one and three year cumulative net income and net income average return on net revenue, average total assets, average total equity, and average total capital. |
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(4) | Growth - Refers to the peer company’s average percentile rank relative to the group in one and three year cumulative compound annual growth rate (CAGR) in net revenue, operating cash flow, net income, and diluted earnings per share (EPS). |
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(5) | TSR - Refers to the peer company’s one and three year average percentile rank relative to the group in total shareholder return. |
In establishing the comparison above, the Committee agreed to remove A.M. Castle due to non-compliance with NYSE listing standards, Amtel due to its acquisition by Mircochip Technology, Chemtura due to its acquisition by Lanxess AG, and Horsehead Holding due to bankruptcy. The Committee also agreedreviewed the 2021 peer group of comparison companies and decided that it was not necessary to add Calgon Carbon, Innophos Holdings, Rayonier Advanced Materials, Schweitzer-Mauduit International, and Suncoke Energy. All five of these companies were addedmake any changes for reasons including more comparable size and similar business. 2022.
Based on FW Cook’s September 20162021 report, the Company ranked near the median range of comparison companies, on average, in terms of company size, profitability, growth, and shareholder return. This competitive ranking indicates that the comparison group is a reasonable competitive benchmark and that the median range is an appropriate and fair range to target for total direct compensation opportunities for the Company’s Officers,NEOs, with actual pay deliveredcompensation earned dependent on Company and individual performance.
Given the strong correlation between revenue and executive pay,compensation, FW Cook size-adjusts the competitive market by using the median paycompensation of the comparison group, where the Company is positioned near the median of the group in terms of company size, profitability,
growth, and shareholder return. The peer companygroup data is blended with median third-party survey data, regressed and adjusted based on the Company’s corporate and business unit revenue scope. The third-party survey data used is from the 20162020 Willis Towers Watson Executive Compensation Database and the 20152021 Aon Hewitt Total Compensation Measurement Survey. The 2020 Willis Towers Watson survey includes 484over 500 organizations ranging in size from approximately $100$5 million to over $100 billion.$500 billion in annual revenue. The 2021 Aon Hewitt surveyTotal Compensation Measurement Survey includes 401450 organizations ranging in size from approximately $30$60 million to over $100 billion.$265 billion in annual revenue. Data selectedutilized from these surveys is scoped based on Company revenue. The compensation
data, and not the identity of the individual companies participating in these surveys, was the significant factor considered by the Committee with respect to its 2022 executive compensation decisions for our NEOs.
The median comparison group data and the size-adjusted third-party survey data is used to set a targeted range for the Company’s paycompensation elements, which is referred to as the median market range. These targeted ranges are within 10% of median for base salaries, within 15% of median for annual cash incentive targets, and within 20% of median for both long-term incentive targets and for target total direct compensation. The underlying rationale for the above ranges is to acknowledge that an exact market data point creates a perception of precision that does not exist, and to provide flexibility to position incumbent/job low or high in range and still be within “market” depending on performance assessment and/or importance of incumbent/job. In making compensation decisions, the Committee reviews these target ranges; however, individual executive officers’NEOs’ total direct compensation, or elements thereof,its components, may vary above or below the market median range due to the executive’s skills, experience in current role, tenure with the Company and individual performance.
Based on the 20162021 comparison group and third-party survey data described above, targeted total direct compensation for 20172022 for our named executive officers at the time of the Committee’s compensation review (which excluded Mr. Vijayvargiya) was within the market median range for target total direct compensation. FW Cook reported that the average mix of base salary, annual cash incentive and annual long-term incentive opportunity for our executive officers, including the CEO,NEOs was representative of competitive practices. The Company’s practice of using a portfolio of grant types is consistent with the majority of comparative company practices. FW Cook also reported that the Company’s equity compensation grant practices for 20172022 ranked belowbetween the median25th and 75th percentiles of the comparison group both in terms of equity compensation cost, and share usage primarily due to the use of cash-settled awards below the executive officer level.run rate, and potential dilution overhang.
In looking ahead, the Committee reviewed the peer group of comparison companies that would be used to assist in setting 2018 target compensation. The Committee decided no further actionschanges to the markupcomposition of the peer group, as mentioned above, were required given the Company’s current financial position. The Company maintains its ranking near the median of the comparison companies in terms of size, profitability, growth, and shareholder return.
Section III: Details and Analysis of the 20172022 Executive Compensation Program
The following is an explanation and analysis of the 2017 pay2022 compensation elements:
Base Salary
The Committee approved base salary increases effective March 25, 2017of 6.25% for all NEOs with the exception of Mr. Vijayvargiya, the incoming Chief Executive Officer. The Committee approved6.33% for Ms. Chadwick and recommended4.97% for Mr. Chemnitz, effective August 1, 2022, to improve the Board Mr. Vijayvargiya's base salary, in conjunction with his total compensation package effective March 3, 2017. In 2017, Mr. Kelley received two base salary increases. The first increase of 5.0% was effective March 2017 and the Committee approved an additional increase of 3.0%, effective October 7, 2017 to bring Mr. Kelley's base salary more in line with the market range for Chief Financial Officer base salaries (in other words, 95% of the market median) and to recognize individual performance. Salary adjustments in 2017 were made to maintain or improve alignment with the existing competitive positioning against market median information described above and to recognize each NEO's 2016past performance 2017 responsibilities and past and future expected contributions towards our success.contributions.
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| | 2021 Base Salary | | 2022 Base Salary | | % Increase |
Jugal K. Vijayvargiya | | $800,000 | | $850,000 | | 6.25% |
Shelly M. Chadwick | | 432,600 | | | 460,000 | | | 6.33% |
Gregory R. Chemnitz | | 432,500 | | | 454,000 | | | 4.97% |
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| | 2016 Base Salary | | 2017 Base Salary | | % Increase |
Jugal K. Vijayvargiya | | --- |
| | $700,000 | | N/A |
Richard J. Hipple | | $854,600 | | 871,700 |
| | 2.00% |
Joseph P. Kelley | | 390,000 |
| | 421,800 |
| | 8.15% |
Gregory R. Chemnitz | | 396,800 |
| | 407,700 |
| | 2.75% |
20172022 Management Incentive Plan (MIP)
Early in the year, the Board approved an annual operating plan that reflected our expectations for ourcompany performance during 2017. 2022.The annual operating plan called for a 7.1%36% increase in adjusted EBIT, a 27% increase in value-added sales compared(VAS) and a target of simplified free cash flow (SFCF) to 2016.generate meaningful positive SFCF while also allowing for investment and working capital growth to support the growing business.
The Committee used the 20172022 annual operating plan as the basis for setting our 20172022 MIP goals of adjusted operating profit (OP)EBIT, VAS growth, and value-added sales (VAS) growth.SFCF. VAS is the amount equal to the Company’s sales minus the aggregate cost to the Company of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and copper.osmium. SFCF is the amount equal to adjusted EBIT plus depreciation and amortization minus the change in working capital (accounts receivable, accounts payable and inventory) and capital investments. The adjusted OP goalEBIT, VAS growth, and SFCF goals accounted for 85%70%, 15%, and 15%, respectively, of each participating NEO's total target annual incentive opportunity and the VAS growth goal accounted for 15% of the totalopportunity.
The 2022 target annual incentive, opportunity. The Committee determined that meeting these goals would require significant effort and achievement on the part of the executive team and all Company employees in the continued execution of our growth strategy.
2017 target annual incentives as a percentage of salariesbase salary, for all NEOs wereeach participating NEO was within the market range and was increased from 100% to 110% for Mr.Vijayvargiya and remained the same as 2016 at 117%2021 for Ms. Chadwick, 70% and Mr. Hipple, 65% for Mr. Kelley andChemnitz, 56% for Mr. Chemnitz. The Committee approved and recommended target annual incentive of 90% for Mr. Vijayvargiya as part of his compensation package..
| | Name | | 2017 MIP Performance Measures and Target Payout as a % of Salary | Name | | 2022 MIP Performance Measures and Target Payout as a % of Salary |
| VAS Growth (15%) | | Adjusted OP (85%) | | Total MIP Target | | Adjusted EBIT (70%) | | VAS Growth (15%) | | SFCF (15%) | | Total MIP Target |
Jugal K. Vijayvargiya | | 13.50% | | 76.50% | | 90% | Jugal K. Vijayvargiya | | 77.0% | | 16.5% | | 16.5% | | 110% |
Richard J. Hipple | | 17.55% | | 99.45% | | 117% | |
Joseph P. Kelley | | 9.75% | | 55.25% | | 65% | |
Shelly M. Chadwick | | Shelly M. Chadwick | | 49.0% | | 10.5% | | 10.5% | | 70% |
Gregory R. Chemnitz | | 8.40% | | 47.60% | | 56% | Gregory R. Chemnitz | | 39.2% | | 8.4% | | 8.4% | | 56% |
Actual payouts can range from 0% of target awards for below-threshold results up to 200% of target awards at maximum levels and are determined on the basis of straight-line mathematical interpolation. Additionally, MIP payouts are subject to recoupment
under our clawback policy.
The table below shows the threshold, target and maximum performance goals for 20172022 as well as actual results:
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($ in millions) | | 2022 MIP Performance Goals and Results | | Results |
Performance Metric | | Weighting | | Threshold (Funds 25%) | | Target (Funds 100%) | | Maximum (Funds 200%) | | 2022 Actual Performance | | % of Target Award Earned |
Adjusted EBIT(1) | | 70.0% | | $108.0 | | $135.0 | | $162.0 | | $136.9 | | 74.9% |
VAS(2) | | 15.0% | | $951.0 | | $1,060.0 | | $1,169.0 | | $1,114.4 | | 22.5% |
SFCF | | 15.0% | | $56.0 | | $70.0 | | $84.0 | | $90.4 | | 30.0% |
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($ in millions) | | 2017 MIP Performance Goals and Results | | Results |
Performance Metric | | Weighting | | Threshold (Funds 25%) | | Target (Funds 100%) | | Maximum (Funds 200%) | | 2017 Actual Performance | | % of Target Award Earned |
Adjusted OP(1) | | 85.0% | | $34.7 | | $41.0 | | $49.1 | | $47.4 | | 179.4% |
VAS Growth | | 15.0% | | 3.0% | | 7.1% | | 11.0% | | 13.0% | | 200.0% |
(1) Actual 2017 operating profit2022 adjusted EBIT for incentive compensation purposes excludes the impact of one-timenon-recurring items which include CEO transition costs, cost reduction initiatives, legacy environmental costs,in 2022 were primarily related to mergers and merger and acquisitionacquisitions costs. See Appendix A for a reconciliation of non-GAAP to GAAP financial measures.
(2) The value-added sales reflect the amounts presented in the Company’s Current Report on Form 8-K furnished to the SEC on March 22, 2023.
The Company's adjusted OPEBIT, used for incentive compensation purposes, was $47.4$136.9 million in 2017,2022, which exceeded thewas above target performance, goal of $41.0 million, resulting in ana weighted earned payout of 179.4%74.9% of target for that portion of the award opportunity. The VAS was 13.0%,$1,114.4 million, which exceeded the maximum of 11.0%, which resultedwas above target performance, resulting in ana weighted earned payout of 200% (maximum)22.5% of target for that portion of the award opportunity. SFCF was $90.4 million, which was above maximum performance, resulting in a weighted earned payout of 30.0% of target for that portion of the award opportunity.
Overall, total MIP awards for allparticipating NEOs were earned at approximately 182.5% of target levelsa 127.4% level in 2017 given the strong financial performance, up from approximately 79% of target in 2016.2022. The table below shows the total 20172022 MIP awards earned as a result of the 2017 adjusted OP andEBIT, VAS growth, and SFCF performance compared to goals:
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| | | | Payouts by Performance Measure | | Total MIP Payout |
| | MIP Target | | Adjusted EBIT(1) | | VAS Growth | SFCF | |
Name | | % Base Salary | | $ | | |
Jugal K. Vijayvargiya | | 110% | | $ | 935,000 | | | $ | 700,315 | | | $ | 210,656 | | | $ | 280,500 | | | $ | 1,191,471 | |
Shelly M. Chadwick | | 70% | | 322,000 | | 241,178 | | | 72,547 | | | 96,600 | | | 410,325 | |
Gregory R. Chemnitz | | 56% | | 254,240 | | 190,426 | | | 57,280 | | | 76,272 | | | 323,978 | |
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| | | | Payouts by Performance Measure | Total MIP Payout |
| | MIP Target | | Adjusted OP(1) | | VAS Growth |
Name | | % | | $ | |
Jugal K. Vijayvargiya | | 90% | | $ | 630,000 |
| | | $ | 960,687 |
| | $ | 189,000 |
| | $1,149,687 |
Richard J. Hipple | | 117% | | 1,019,899 |
| | | 1,555,229 |
| | 305,967 |
| | 1,861,196 |
|
Joseph P. Kelley | | 65% | | 266,175 |
| | | 405,890 |
| | 79,853 |
| | 485,743 |
|
Gregory R. Chemnitz | | 56% | | 228,312 |
| | | 348,153 |
| | 68,494 |
| | 416,647 |
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(1)Actual 2017 operating profit2022 adjusted EBIT for incentive compensation purposes excludes the impact of one-timenon-recurring items which include CEO transition costs, cost reduction initiatives, legacy environmental costs,in 2022 were primarily related to mergers and merger and acquisitionacquisitions costs. See Appendix A for a reconciliation of non-GAAP to GAAP financial measures.
Long-term Incentive Equity-based Awards
General
Target LTI award values are determined based on consideration of the market median range, as well as the experience, responsibilities and performance of each executive. The outstanding equity grants currently held by each NEO are not taken into consideration in making new grants to that NEO.
LTI Award Vehicles and Grants Made in 20172022
The LTI program for 20172022 had four components and included:
•Stock Appreciation Rights (SARs), which are granted at fair market value and appreciate in value based on increases in our share price and, consequently, the capital appreciation achieved for shareholders. The SARs generally vest in thirds on each of the first three years afteranniversary dates measured from the grant date, subject to the NEO's continued service with us on such date.date, and subject to accelerated vesting in certain circumstances as described below in “Potential Payments Upon Termination or Change in Control”. The SARs have a term of seven years during which they can be exercised if vested and are settled (when exercised) in shares.
The SARs will expire if not exercised prior to the end of the seven-year term.
•Restricted Stock Units (RSUs), which are designed for retention purposes and are earned by our NEOs based on the passage of time and continued employment. The RSUs generally vest one-third on each of the first three years afteranniversaries of the grant date, subject to the NEO's continued service with us on such date, and are settled in shares.
shares, subject to accelerated vesting in certain circumstances as described below in “Potential Payments Upon Termination or Change in Control”. Mr. Chemnitz's 2022 RSU grant included a special grant in recognition for his work on the closing of the HC Stark Newton acquisition, valued at $50,000, that will cliff vest on the third anniversary of the grant date.