SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrantxþ Filed by a Party other than the Registrant o¨ Check the appropriate box:
¨o Preliminary Proxy Statement¨o Confidential, for Use of the Commission Only (as permitted byRule 14a-6(e)(2))xþ Definitive Proxy Statement¨o Definitive Additional Materials¨o Soliciting Material UnderRule 14a-12(Name of Registrant as Specified In Its Certificate)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required.
¨o | Fee computed on table below per Exchange ActRules 14a-6(i)(1) and 0-11. |
| | |
| | (1) | Title of each class of securities to which transaction applies: |
| | (2) | Aggregate number of securities to which transaction applies: |
| | (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange ActRule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): |
| | (4) | Proposed maximum aggregate value of transaction: |
¨o Fee paid previously with preliminary materials.¨ | |
| o | Check box if any part of the fee is offset as provided by Exchange ActRule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| | |
| | (1) | Amount Previously Paid: |
| | (2) | Form, Schedule or Registration Statement No.: |
(4) Date Filed:
Annual Meeting of Shareholders and Proxy Statement
The Annual Meeting of Shareholders of PolyOne Corporation will be held at The Forum Conference and Education Center, 1375 E. Ninth Street, Cleveland, Ohio at 9:00 a.m. on Thursday, May
20, 2004.10, 2007. The purposes of the meeting are:
1. To elect Directors;
| | 2. | To approveratify the appointment of Ernst & Young LLP as PolyOne Corporation Deferred Compensation PlanCorporation’s independent registered public accounting firm for Non-Employee Directors;the fiscal year ending December 31, 2007; and |
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| | 3. | To consider and transact any other business that may properly come before the meeting. |
Shareholders of record at the close of business on March
22, 200412, 2007 are entitled to notice of and to vote at the meeting.
For the Board of Directors
WENDY
Senior Vice President, Chief Legal
Officer and Secretary March 29, 200421, 2007
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POLYONE CORPORATION
PolyOne Center
33587 Walker Road
Avon Lake, Ohio 44012
PROXY STATEMENT
Dated March 29, 200421, 2007
The
Our Board of Directors
of PolyOne Corporation respectfully requests your proxy for use at the Annual Meeting of Shareholders to be held at The Forum Conference and Education Center, 1375 E. Ninth Street, Cleveland, Ohio at 9:00 a.m. on Thursday, May
20, 2004,10, 2007, and at any adjournments of that meeting. This proxy statement is to inform you about the matters to be acted upon at the meeting.
If you attend the meeting, you may vote your shares by ballot. If you do not attend, your shares may still be voted at the meeting if you sign and return the enclosed proxy card. Common shares
of PolyOne represented by a properly signed card will be voted in accordance with the choices marked on the card. If no choices are marked, the shares will be voted to elect the nominees listed on pages 3
andthrough 4
belowof this proxy statement and to
approveratify the
PolyOne Corporation Deferred Compensation Planappointment of Ernst & Young LLP as our independent registered public accounting firm for
Non-Employee Directors.the fiscal year ending December 31, 2007. You may revoke your proxy before it is voted by giving notice to us in writing or orally at the meeting. Persons entitled to direct the vote of shares held by the following
PolyOne plans will receive a separate voting instruction card: The PolyOne Retirement Savings Plan,
PolyOne Retirement Savings Plan for Collective Bargaining Employees, PolyOne Retirement Savings Plan for Collective Bargaining Employees A, DH Compounding
401(k)Company Savings and Retirement Plan
and Trust and PolyOne Canada Inc. Retirement Plan. If you receive a separate voting instruction card for one of these plans, you must sign and return the card as indicated on the card in order to instruct the trustee on how to vote the shares held under the plan. You may revoke your voting instruction card before the trustee votes the shares held by it by giving notice in writing to the trustee.
Shareholders may also submit their proxies by telephone or over the Internet. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. These procedures allow shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded. Instructions for voting by telephone and over the Internet are printed on the proxy cards.
We are mailing this proxy statement and the enclosed proxy card and, if applicable, the voting instruction card, to shareholders on or about April 5, 2004. PolyOne’sMarch 26, 2007. Our headquarters are located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012 and our telephone number is(440) 930-1000.
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PROPOSAL 1 — ELECTION OF DIRECTORSPolyOne��s
Our Board of Directors currently consists of ten Directors. Each Director serves for a
one yearone-year term and until a successor is duly elected and qualified, subject to the Director’s earlier death, retirement or resignation.
TheOur Corporate Governance Guidelines provide that all non-employee Directors will retire from the Board
met ten times during 2003,not later than the
calendar year being PolyOne’s fiscal year. Each Director is expected to attendfirst Annual Meeting of Shareholders following the
Director’s 70th birthday. In accordance with these Guidelines, Mr. Embry will retire from the Board at the 2007 Annual Meeting of Shareholders.
In 2003, eightFollowing Mr. Embry’s retirement, our Board will consist of
PolyOne’s ten Directors attended the Annual Meeting of Shareholders. PolyOne’s Board of Directors has reviewed the independence of its members as required by the listing standards of the New York Stock Exchange and has determined that none of the nine
non-employee directors has a material relationship with PolyOne and that each such director is independent in accordance with the listing standards of the New York Stock Exchange. PolyOne’s independent Directors meet regularly in executive sessions chaired by William F. Patient, Chairman of the Board. The Board and each Committee conduct an annual self-evaluation. PolyOne’s corporate governance principles and additional governance materials are available at PolyOne’s website at www.polyone.com.Directors.
A shareholder who wishes to suggest a Director candidate for consideration by the Compensation and Governance Committee must provide written notice to
theour Secretary
of PolyOne in accordance with the procedures specified in Regulation 12 of
PolyOne’sour Regulations. Generally, the Secretary must receive the notice
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not less than 60 nor more than 90 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s annual meeting. The notice must set forth, as to each nominee, the name, age, principal occupations and employment during the past five years, name and principal business of any corporation or other organization in which such occupations and employment were carried on, and a brief description of any arrangement or understanding between such person and any others pursuant to which such person was selected as a nominee. The notice must include the nominee’s signed consent to serve as a Director if elected. The notice must set forth the name and address of, and the number of PolyOneour common shares owned by, the shareholder giving the notice and the beneficial owner on whose behalf the nomination is made and any other shareholders believed to be supporting such nominee.
The
Following are the nominees for election as Directors for terms expiring in
20052008 and a description of the business experience of each
nominee appear below.nominee. Each of the nominees is a current member of the Board. The reference below each Director’s name to the term of service as a Director includes the period during which the Director served as a Director of The Geon Company
(“Geon”) or M.A. Hanna Company
(“M.A. Hanna”), each
a predecessor to PolyOne.one of our predecessors. The information is current as of March 21, 2007. | | |
J. Douglas Campbell
Director since 1993
Age — 62
65 | | Retired Chairman and Chief Executive Officer of ArrMaz Custom Chemicals, Inc., a specialty mining and asphalt additives and reagents producer, sinceproducer. Mr. Campbell served in this capacity from December 2003. Served2003 until the company was sold in July 2006. Mr. Campbell served as President and Chief Executive Officer and was a Director of Arcadian Corporation, a nitrogen chemicals and fertilizer manufacturer, from December 1992 until his retirementthe company was sold in 1997. From 1966 to 1992, Mr. Campbell held various positions with Standard Oil (Ohio) and British Petroleum. |
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Carol A. Cartwright
Director since 1994
Age — 62
65 | | Retired President of Kent State University, a public higher education institution, since 1991.institution. Ms. Cartwright served in this capacity from 1991 until her retirement in July 2006. Ms. Cartwright serves on the Boards of Directors of KeyCorp, FirstEnergy and The Davey Tree Expert Company. |
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Gale Duff-Bloom
Director since 1994
Age — 64
67 | | Served asRetired President of Company Communications and Corporate Image of J.C. Penney Company, Inc., a major retailer,retailer. Ms. Duff-Bloom served in this capacity from June 1999 until her retirement in April 2000. From 1996 to June1996-June 1999, Ms. Duff-Bloom served as President of Marketing and Company Communications of J.C. Penney. |
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Wayne R. Embry
Director since 1990
Age — 66
| | Served as President and Chief Operating Officer, Team Division, of the Cleveland Cavaliers, a professional basketball team, from 1986 until his retirement in 2000. Mr. Embry serves on the Boards of Directors of Kohl’s Corporation and the Federal Reserve Bank of Cleveland. |
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Richard H. Fearon
Director since 2004
Age — 51 | | Executive Vice President, Chief Financial and Planning Officer of Eaton Corporation, a global manufacturing company, since April 2002. Mr. Fearon served as a Partner of Willow Place Partners LLC from 2001-2002 and was the Senior Vice President — Corporate Development for Transamerica Corporation from 1995-2000. |
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Robert A. Garda
Director since 1998
Age — 65
68 | | Retired Director of McKinsey & Company, Inc., a management consulting firm. Mr. Garda served in this capacity from 1978-1994. He served as anExecutive-in-Residence of The Fuqua School of Business, Duke University, since 1997. Mr. Garda servedfrom 1997-2005, as an independent consultant from 1995 to 1997. Mr. Garda served1995-1997 and as President and Chief Executive Officer of Aladdin Industries from 1994 to 1995. From 1967 to 1994, Mr. Garda was with McKinsey & Company and served as a director from 1978 to 1994.1994-1995. Mr. Garda serves on the Boards of Directors of Insect Biotechnology, Inc., VSV, Inc.Edge Seal Technologies and GED, Inc.Ryan Herco Flow Solutions. |
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Gordon D. Harnett
Director since 1997
Age — 61
64 | | Retired Chairman, President and Chief Executive Officer of Brush Engineered Materials Inc., an international supplier and producer of high performance engineered materials, since 1991.materials. Mr. Harnett served in this capacity from 1991 until his retirement in May 2006. Mr. Harnett serves on the Boards of Directors of The Lubrizol Corporation and EnPro Industries, Inc. |
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David H. Hoag
Director since 1999
Age — 64
| | Served as |
Edward J. Mooney
Director since 2006
Age — 65 | | Retired Chairman of LTV Corporation, a steel manufacturer, from 1991 until his retirement in 1999, and as Chief Executive Officer of Nalco Chemical Company, a specialty chemicals company. Mr. Mooney served in this capacity from 1991 to September 1998.1994-2000. Mr. HoagMooney also served as Déléqué Général — North America, of Suez Lyonnaise des Eaux from 2000-2001, following its acquisition of Nalco. Mr. Mooney serves on the Boards of Directors of Brush Engineered MaterialsFMC Corporation, FMC Technologies, Inc., The Chubb Corporation, The LubrizolNorthern Trust Corporation and NACCO Industries, Inc. |
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| | Cabot Microelectronics Corporation. |
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William F. PatientStephen D. Newlin
Director since 2003 2006
Age — 69 54 | | Chairman, of the Board since November 2003. Served as the Chairman of the BoardPresident and Chief Executive Officer of The GeonPolyOne since February 2006. Mr. Newlin served as President — Industrial Sector of Ecolab, Inc., a global developer and marketer of cleaning and sanitizing specialty chemicals, products and services from 2003-2006. Mr. Newlin served as President and a director of Nalco Chemical Company, a manufacturer of specialty chemicals, services and systems, from 1993 until his retirement in 1999.1998-2001 and was Chief Operating Officer and Vice Chairman from 2000-2001. Mr. PatientNewlin serves on the Board of Directors of Navistar International Corporation and is a memberBlack Hills Corporation. |
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Farah M. Walters
Director since 1998
Age — 62 | | Lead Director of theour Board of Trustees of Washington University. |
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Thomas A. Waltermire
DirectorDirectors since 1998
Age — 54
| | Chief Executive OfficerMay 2006 and President of PolyOne since August 31, 2000 and Chairman of the Board from August 2000 until November 2003. Prior to the formation of PolyOne at the end of August 2000, Mr. Waltermire served as Chairman of the Board of The Geon Company from August 1999 and Chief Executive Officer and President of Geon from May 1999.QualHealth, LLC, a healthcare consulting firm that designs healthcare delivery models, since 2005. From February 1998 to May 1999, Mr. Waltermire served as President and Chief Operating Officer of Geon. Earlier, Mr. Waltermire held various positions with Geon, including Chief Financial Officer. Mr. Waltermire serves on1992 until her retirement in June 2002, Ms. Walters was the Board of Directors of Nucor Corporation. |
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Farah M. Walters
Director since 1998
Age — 59
| | Served as President and Chief Executive Officer of University Hospitals Health System and University Hospitals of Cleveland from 1992 until her retirement in June 2002. Ms. Walters serves on the Boards of Directors of Kerr-McGee Corporation and Alpharma Inc.Cleveland. |
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CORPORATE GOVERNANCE AND BOARD MATTERS
Director Independence
Our Corporate Governance Guidelines require that a substantial majority of the members of our Board of Directors be “independent” under the listing standards of the New York Stock Exchange (NYSE). To be considered “independent,” the Board of Directors must make an affirmative determination that the Director has no material relationship with us other than as a Director, either directly or indirectly (such as an officer, partner or shareholder of another entity that has a relationship with us or any of our subsidiaries). In each case, the Board of Directors considers all relevant facts and circumstances in making an independence determination.
A Director will not be deemed to be “independent” if, within the preceding three years:
(a) the Director was our employee, or an immediate family member of the Director was either our executive officer or the executive officer of any of our affiliates;
(b) the Director received, or an immediate family member of the Director received, more than $100,000 per year in direct compensation from us, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation was not contingent in any way on continued service);
(c) the Director, or an immediate family member of the Director, is a current partner of Ernst & Young LLP, our external auditor or within the last three years was a partner or employee of Ernst & Young LLP and personally worked on our audit during that time;
(d) the Director was employed, or an immediate family member of the Director was employed, as an executive officer of another company where any of our present executive officers serve on that company’s compensation committee; or
(e) the Director was an executive officer or an employee, or an immediate family member of the Director was an executive officer, of a company that makes payments to, or receives payments from, us for property or services in an amount which, in any single fiscal year, exceeds the greater of $1,000,000, or 2% of such other company’s consolidated gross revenues.
An “immediate family member” includes a Director’s spouse, parents, children, siblings, mothers andfathers-in-law, sons anddaughters-in-law, brothers andsisters-in-law, and anyone (other than domestic employees) who shares such Director’s home.
A Director’s service as an executive officer of anot-for-profit organization will not impair his or her independence if, within the preceding three years, our charitable contributions to the organization in any single fiscal year, in the aggregate, did not exceed the greater of $1,000,000 or 2% of that organization’s consolidated gross revenues.
The NYSE “independent director” listing standards also provide that employment as an interim Chairman, Chief Executive Officer or other officer will not disqualify a director from being considered independent following that employment. William F. Patient, our former Director, ceased serving as interim Chief Executive Officer on February 21, 2006.
The Board of Directors determined that J. Douglas Campbell, Carol A. Cartwright, Gale Duff-Bloom, Wayne R. Embry, Richard H. Fearon, Robert A. Garda, Gordon D. Harnett, Edward J. Mooney, William F. Patient, and Farah M. Walters are independent under the NYSE “independent director” listing standards. In making this determination, the Board reviewed significant transactions, arrangements or relationships that a Director might have with our customers or suppliers.
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Lead Director
Our independent Directors meet regularly in executive sessions. In 2006, the Board of Directors amended our Corporate Governance Guidelines to allow the independent directors to designate a lead director to preside at executive sessions. The Lead Director acts as the key liaison between the independent directors and the Chief Executive Officer and is responsible for coordinating the activities of the other independent directors and for performing various other duties as may from time to time be determined by the independent directors. In May 2006, the Board elected Ms. Walters to serve as the Lead Director. Mr. Patient served as our Lead Director from February 2006 until his retirement in May 2006.
Board Attendance
The Board met eight times during 2006, the calendar year being our fiscal year. Each Director is expected to attend the Annual Meeting of Shareholders. In 2006, all of our Directors attended the Annual Meeting of Shareholders.
Committees of the Board of Directors; AttendanceThe
As of the date of this proxy statement, our Board has anten directors and the following four committees: the Audit Committee, consisting of Messrs. Harnett, the Chairperson, Garda, Hoag and Patient and Ms. Cartwright; a Compensation and Governance Committee, consisting of Mss. Duff-Bloom, the Chairperson, Cartwright and Walters and Messrs. Campbell, Embry, Garda, Harnett and Hoag; an Environmental, Health and& Safety Committee consisting of Messrs. Embry,and the Chairperson, Campbell and Patient and Ms. Walters; and a Financial Policy Committee consistingCommittee. The following table sets forth the membership of Messrs. Campbell, the standing committees of our Board of Directors, as of the date of this proxy statement, and the number of times each committee met in 2006. The current function of each committee is described below.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Compensation &
| | | | Environmental,
| | | | | |
| | | | | | | | Governance
| | | | Health &
| | | | Financial
| |
| Director | | | Audit Committee | | | | Committee | | | | Safety Committee | | | | Policy Committee | |
| Mr. Campbell | | | | | | | | | X | | | | | X | | | | | X | * |
| Ms. Cartwright | | | | X | | | | | X | | | | | | | | | | | |
| Ms. Duff-Bloom | | | | | | | | | X | | | | | X | | | | | X | |
Mr. Embry(1) | | | | | | | | | X | | | | | X | * | | | | X | |
| Mr. Fearon | | | | X | | | | | X | | | | | | | | | | | |
| Mr. Garda | | | | X | | | | | X | | | | | | | | | | | |
| Mr. Harnett | | | | X | * | | | | X | | | | | | | | | | | |
| Mr. Mooney | | | | | | | | | X | | | | | | | | | | X | |
| Mr. Newlin | | | | | | | | | | | | | | X | | | | | X | |
| Ms. Walters | | | | | | | | | X | * | | | | | | | | | X | |
Number of Meetings
in 2006 | | | | 9 | | | | | 10 | | | | | 2 | | | | | 5 | |
| | | | | | | | | | | | | | | | | | | | | |
X — Member
* — Chairperson
(1) Mr. Embry
and Patient and Ms. Walters.will retire from the Board at the 2007 Annual Meeting of Shareholders.
The Audit Committee which met five times during 2003, meets with appropriate financial and legal personnel and independent auditors to review PolyOne’sour corporate accounting, internal controls, financial reporting and compliance
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with legal and regulatory requirements. The Committee exercises oversight of
theour independent auditors,
the internal auditors and
the financial
management of PolyOne.management. The Audit Committee appoints the independent auditors to serve as auditors in examining
PolyOne’sour corporate accounts.
PolyOne’sOur common shares are listed on the New York Stock Exchange and are governed by its listing standards. All members of the Audit Committee meet the financial literacy and independence requirements as set forth in the New York Stock Exchange listing standards. The Board of Directors has determined that Mr. Harnett meets the requirements of an “audit committee financial expert” as defined by the Securities and Exchange Commission.
On September 6, 2000, the Board adopted an Audit Committee charter, which was amended on December 10, 2003. A copy of the amended charter is attached to this proxy statement as Appendix A.The Compensation and Governance Committee which met nine times during 2003, reviews and approves the compensation, benefits and perquisites afforded PolyOne’sour executive officers and other highly-compensated personnel. The Committee has similar responsibilities with respect to non-employee Directors, except that the Committee’s actions and determinations are subject to the approval of the Board of Directors. The Committee also has oversight responsibilities for all of PolyOne’sour broad-based compensation and benefit programs and provides policy guidance and oversight on selected human resource policies and practices. To help it perform its responsibilities, the Committee makes use of PolyOne resources, including members of senior management in our human resources, legal and finance departments. In addition, the Committee directly engages the resources of Towers Perrin as an independent outside compensation consultant (the “Consultant”) to assist the Committee in assessing the competitiveness and overall appropriateness of our executive compensation programs. In 2006, the Committee, assisted by the Consultant, analyzed competitive market compensation data relating to salary, annual incentive and long-term incentive. In analyzing competitive market data, the Committee reviewed data from a peer group of similarly-sized U.S. chemical companies and reviewed data from the Consultant’s Compensation Data Bank and other published surveys. The Consultant then assisted the Committee in benchmarking base salaries and annual and long-term incentive targets to approximate the market median. The Consultant, assisted by our human resources department, also prepared tally sheets to provide the Committee with information regarding our executive officers’ total annual compensation, termination benefits and wealth accumulation. More detailed information about the compensation awarded to our executive officers in 2006 is provided in the “Compensation Discussion and Analysis” section of this proxy statement. The Consultant maintains regular contact with the Committee and interacts with management to gather the data needed to prepare reports for Committee review.
The Committee recommends to the Board of Directors candidates for nomination as Directors,
of PolyOne, and the Committee advises the Board with respect to governance issues and directorship practices, reviews succession planning for the Chief Executive Officer and other executive officers and oversees the process by which the Board annually evaluates the performance of the Chief Executive Officer. All members of the Compensation and Governance Committee have been determined to be independent as defined by the New York Stock Exchange listing standards.
On May 15, 2003, the Board adopted a Compensation and Governance Committee Charter, which is available to stockholders on PolyOne’s website at www.polyone.com.4
The Compensation and Governance Committee will consider shareholder suggestions for nominees for election to PolyOne’sour Board of Directors as described on Pagepage 3. The Committee uses a variety of methods for identifying and evaluating nominees for Directors, including third-party search firms, recommendations from current Board members and recommendations from shareholders. Nominees for election to the Board of Directors are selected on the basis of the following criteria:
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| • | Business or professional experience; |
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| • | Knowledge and skill in certain specialty areas such as accounting and finance, international markets, physical sciences and technology or the polymer or chemical industry; |
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Business or professional experience;
Knowledge and skill in certain specialty areas such as accounting and finance, international markets, physical sciences and technology or the polymer or chemical industry;
Personal characteristics such as ethical standards, integrity, judgment, leadership and the ability to devote sufficient time to PolyOne’s affairs;
Substantial accomplishments with demonstrated leadership capabilities;
Freedom from outside interests that conflict with the best interests of PolyOne;
The diversity of backgrounds and experience each member will bring to the Board of Directors; and
The needs of PolyOne from time to time.
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| • | Personal characteristics such as ethical standards, integrity, judgment, leadership and the ability to devote sufficient time to our affairs; |
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| • | Substantial accomplishments with demonstrated leadership capabilities; |
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| • | Freedom from outside interests that conflict with our best interests; |
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| • | The diversity of backgrounds and experience each member will bring to the Board of Directors; and |
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| • | Our needs from time to time. |
The Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective nominees.
These criteria have beenThe Committee has established
by the Compensation and Governance Committee asthese criteria that any Director nominee, whether suggested by a shareholder or otherwise, should satisfy. A nominee for election to the Board who is suggested by a shareholder will be evaluated by the Committee in the same manner as any other nominee for election to the Board. Finally, if the Committee determines that a candidate should be nominated for election to the Board, the Committee will present its findings and recommendation to the full Board for approval.
Edward J. Mooney, who is standing for election by the shareholders for the first time, was recommended as a Board member by the Committee.
In the past, the Committee has used Christian & Timbers as a third-party search firm, at our expense, to assist in identifying qualified nominees for the Board. The search firm was asked to identify possible candidates who meet the minimum and desired qualifications, to interview and screen such candidates (including conducting appropriate background and reference checks), to act as a liaison among the Board, the Committee and each candidate during the screening and evaluation process, and thereafter to be available for consultation as needed by the Committee. The Committee did not use the services of Christian & Timbers in 2006, but has asked them, in 2007, to assist it again in identifying potential nominees to the Board.
The Environmental, Health and Safety Committee
which met two times during 2003, exercises oversight with respect to
PolyOne’sour environmental, health, safety, security and product stewardship policies and practices and
itsour compliance with related laws and regulations.
The Financial Policy Committee which met six times during 2003, exercises oversight with respect to PolyOne’sour capital structure, borrowing and repayment of funds, financial policies, management of foreign exchange risk and other matters of risk management, banking relationships and other financial matters relatingmatters.
The Board of Directors has adopted a written charter for each of the standing committees of the Board of Directors. These charters are posted and available on our investor relations internet website at www.polyone.com under the Corporate Governance page. Shareholders may request copies of these charters, free of charge, by writing to
PolyOne.PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012, Attention: Secretary, or by calling(440) 930-1000.
The Board and each Committee conduct an annual self-evaluation. During 2003,2006, each incumbent Director attended at least 75% of the meetings of the Board of Directors and of the Committees on which he or she served.
Code of Ethics, Code of Conduct and Corporate Governance Guidelines
In accordance with applicable NYSE Listing Standards and Securities and Exchange Commission Regulations, the Board of Directors has adopted a Code of Ethics, Code of Conduct and Corporate Governance Guidelines. These are also posted and available on our investor relations
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internet website at www.polyone.com under the Corporate Governance page. Shareholders may request copies of these corporate governance documents, free of charge, by writing to PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012, Attention: Secretary, or by callingShareholder (440) 930-1000.
Communication with Board of Directors Shareholders
and other interested parties interested in communicating directly with the Board of Directors
as a group, the non-management Directors as a group, or with any individual Director may do so by writing to the Secretary, PolyOne Corporation, 33587 Walker Road, Avon Lake, Ohio 44012. The mailing envelope and letter must contain a clear notation indicating that the enclosed letter is
either a “Shareholder-Board of Directors
Communication.Communication” or an “Interested Party-Board of Directors Communication,”
as appropriate.
The Secretary will review all such correspondence and regularly forward to the Board of Directors a log and summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board or Committees of the Board or that she otherwise determines requires their attention. Directors may at any time review a log of all correspondence
received by PolyOnewe receive that is addressed to members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of
PolyOne’sour internal audit department and handled in accordance with procedures established by the Audit Committee for such matters.
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Director Compensation of DirectorsPolyOne pays unaffiliated
We pay our non-employee Directors an annual retainer of
$43,000,$100,000, quarterly in arrears,
consisting of a cash retainer of $50,000 and
annually grants to Directors an award of
$17,000$50,000 in value of fully vested common shares.
PolyOne eliminated fees previously paid for each Board and committee meeting attended. PolyOne grantsWe grant the shares quarterly and
determinesdetermine the number of shares to be granted by dividing the dollar value by the arithmetic average of the high and low stock price on the last trading day of each quarter.
We pay individual meeting fees only as follows: fees of $2,000 for each unscheduled Board and committee meeting attended and fees of $1,000 for participation in each unscheduled significant telephonic Board and committee meeting. In addition, the Chairpersons of
theeach committee receive a fixed annual cash retainer, payable quarterly, as follows: $5,000 for Environmental, Health and Safety and Financial Policy Committees
receive a fixed annual retainer of $3,000, payable quarterly. The Chairpersons of theand $10,000 for Audit and Compensation and Governance
Committees receive a fixed annual retainer of $10,000, payable quarterly. PolyOne reimbursesCommittees. We reimburse Directors for their expenses associated with each meeting attended.
The Chairman of the Board of Directors receives a fixed annual retainer of $200,000, payable quarterly.PolyOne generally grants
We grant each new
non-employee Director
who is not an employee of PolyOne at the time of his or her initial election or appointment as a Director an
option to acquire 15,000award of 8,500 common shares.
Each non-employee Director receives an annual option to acquire 6,000 common shares, upon re-election to the Board, effective as of the date of the Annual Meeting. The
options and share awards made to Directors are awarded under
the PolyOne Corporation 2000 Stockeither our Deferred Compensation Plan for Non-Employee Directors or our 2005 Equity and Performance Incentive
Plan or any other present or future stock plan of PolyOne having shares available for these awards.Plan.
Directors who are not our employees of PolyOne may defer payment of all or a portion of their compensation as a Director under PolyOne’sour Deferred Compensation Plan for Non-Employee Directors (the “Directors’ Deferred Compensation Plan”).Directors. A Director may defer the compensation as cash or elect to have it converted into PolyOneour common shares at a rate equal to 125% of the cash compensation amount. Deferred compensation, whether in the form of cash or common shares, is held in trust for the participating Directors. Interest is earned on the cash amounts and dividends, if any, on the common shares deferred accrue for the benefit of the participating Directors.
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2006 DIRECTOR COMPENSATION
| | | | | | | | | | | | | | | | | | | | | |
| | | | Fees Earned
| | | | | | | | | | | | | |
| | | | or Paid
| | | | Stock
| | | | Option
| | | | | |
| | | | in Cash(3)
| | | | Awards(4)(6)
| | | | Awards(6)
| | | | Total
| |
| Name | | | ($) | | | | ($) | | | | ($) | | | | ($) | |
| J.D. Campbell | | | $ | 62,000 | | | | $ | 50,000 | | | | | — | | | | $ | 112,000 | |
| C.A. Cartwright | | | | 56,000 | | | | | 50,000 | | | | | — | | | | | 106,000 | |
| G. Duff-Bloom | | | | 57,000 | | | | | 50,000 | | | | | — | | | | | 107,000 | |
| W.R. Embry | | | | 60,000 | | | | | 50,000 | | | | | — | | | | | 110,000 | |
| R.H. Fearon | | | | 59,000 | | | | | 50,000 | | | | | — | | | | | 109,000 | |
| R.A. Garda | | | | 59,000 | | | | | 50,000 | | | | | — | | | | | 109,000 | |
| G.D. Harnett | | | | 68,000 | | | | | 50,000 | | | | | — | | | | | 118,000 | |
E.J. Mooney(1) | | | | 4,167 | | | | | 71,359 | (5) | | | | — | | | | | 75,526 | |
W.F. Patient(2) | | | | — | | | | | — | | | | | — | | | | | — | |
| F.M. Walters | | | | 67,000 | | | | | 50,000 | | | | | — | | | | | 117,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | Mr. Mooney was elected as a Director on December 6, 2006. |
|
| (2) | | Mr. Patient served as our Chairman, President and Chief Executive Officer until his retirement from these positions on February 21, 2006. Mr. Patient retired as a member of our Board of Directors on May 25, 2006. All compensation received by Mr. Patient (including compensation for serving as a Director) is reported in the 2006 Summary Compensation Table contained in this proxy statement. |
|
| (3) | | Non-employee Directors may defer payment of all or a portion of their cash compensation as a Director (cash retainer of $50,000, meeting fees, and chair fees) under our Deferred Compensation Plan for Non-Employee Directors. A Director may defer his or her compensation as cash or elect to have it converted into our common shares at a rate equal to 125% of the cash compensation amount. The following have elected to defer all or a portion of their cash compensation into our common shares and have received the 25% premium on the amount deferred into stock: Mr. Campbell ($15,500 in premiums); Ms. Cartwright ($14,000 in premiums); Ms. Duff-Bloom ($10,688 in premiums); Mr. Embry ($7,500 in premiums); Mr. Garda ($7,375 in premiums); Mr. Harnett ($17,000 in premiums); Mr. Mooney ($1,042 in premiums); and Ms. Walters ($8,375 in premiums). |
|
| (4) | | We pay non-employee Directors an annual award of $50,000 in value of fully vested common shares, which the Directors may elect to defer under our Deferred Compensation Plan for Non-Employee Directors. We grant the shares quarterly and determine the number of shares to be granted by dividing the dollar value by the arithmetic average of the high and low stock price on the last trading day of each quarter. We used the following quarterly fair market values in calculating the number of shares: March 31, 2006- $9.180; June 30, 2006- $8.740; September 29, 2006- $8.360; and December 29, 2006- $7.495. |
|
| (5) | | Mr. Mooney received a one time grant of 8,500 common shares upon his election to the Board of Directors. The dollar amount recognized for financial statement reporting purposes for fiscal year 2006 (i.e., the fair market value on the date of grant) is included in this number. |
10
| | |
| (6) | | In 2006, no grants, exercises or vesting of stock options occurred with respect to our Directors. The number of outstanding stock options held by each Non-Employee Director at the end of the fiscal year is set forth in the following table. All of these options are fully exercisable. In addition, the number of fully-vested deferred shares held in an account for each Director at the end of the fiscal year is set forth in the following table. |
| | | | | | | | | | | |
| | | | Option Awards | | | | Stock Awards | |
| | | | Number of
| | | | Number of
| |
| | | | Securities Underlying
| | | | Deferred
| |
| | | | Unexercised Options
| | | | Shares
| |
| Name | | | (#) | | | | (#) | |
| J.D. Campbell | | | | 48,000 | | | | | 102,933 | |
| C.A. Cartwright | | | | 39,000 | | | | | 68,471 | |
| G. Duff-Bloom | | | | 48,000 | | | | | 83,559 | |
| W.R. Embry | | | | 39,000 | | | | | 32,764 | |
| R.H. Fearon | | | | 15,000 | | | | | 0 | |
| R.A. Garda | | | | 61,500 | | | | | 36,892 | |
| G.D. Harnett | | | | 61,500 | | | | | 89,115 | |
| E.J. Mooney | | | | 0 | | | | | 9,749 | |
| W.F. Patient | | | | 0 | | | | | 0 | |
| F.M. Walters | | | | 54,000 | | | | | 84,698 | |
| | | | | | | | | | | |
11
BENEFICIAL OWNERSHIP OF COMMON SHARES The following table shows the number of
our common shares beneficially owned on March
22, 200412, 2007 (including options exercisable within 60 days of that date) by each of
theour Directors and nominees,
any Director who served during 2006, each of the executive officers named in the
2006 Summary Compensation Table on page
1129 and by all Directors and executive officers as a group.
| | | |
Name
| | Number of
Shares (1)
| |
J. Douglas Campbell | | 135,255 | (2)(3) |
Carol A. Cartwright | | 81,393 | (2)(3) |
Gale Duff-Bloom | | 114,676 | (2)(3) |
Wayne R. Embry | | 52,406 | (2)(3) |
Robert A. Garda | | 97,551 | (2)(3) |
Gordon D. Harnett | | 117,259 | (2)(3) |
David H. Hoag | | 99,055 | (2)(3) |
William F. Patient | | 412,475 | (2)(3) |
Thomas A. Waltermire | | 1,103,796 | (3) |
Farah M. Walters | | 103,687 | (2)(3) |
V. Lance Mitchell | | 409,853 | (3) |
W. David Wilson | | 431,072 | (3) |
Wendy C. Shiba | | 115,526 | (3) |
Michael L. Rademacher | | 152,047 | (3) |
17 Directors and executive officers as a group | | 3,929,220 | (2)(3) |
| | | | | | | | | | | | | |
| | | Number of
| | | Right to
| | | Total
| |
| | | Shares
| | | Acquire
| | | Beneficial
| |
Name | | Owned(1) | | | Shares(3) | | | Ownership | |
| J. Douglas Campbell | | | 104,989(2) | | | | 48,000 | | | | 152,989 | |
| Carol A. Cartwright | | | 87,284(2) | | | | 39,000 | | | | 126,284 | |
| Gale Duff-Bloom | | | 84,057(2) | | | | 48,000 | | | | 132,057 | |
| Wayne R. Embry | | | 43,311(2) | | | | 39,000 | | | | 82,311 | |
| Richard H. Fearon | | | 13,437(2) | | | | 15,000 | | | | 28,437 | |
| Robert A. Garda | | | 70,786(2) | | | | 61,500 | | | | 132,286 | |
| Gordon D. Harnett | | | 105,926(2) | | | | 61,500 | | | | 167,426 | |
| Edward J. Mooney | | | 9,749(2) | | | | 0 | | | | 9,749 | |
| Farah M. Walters | | | 85,754(2) | | | | 54,000 | | | | 139,754 | |
| Stephen D. Newlin | | | 219,300 | | | | 0 | | | | 219,300 | |
| William F. Patient | | | 81,431 | | | | 146,000 | | | | 227,431 | |
| W. David Wilson | | | 128,976 | | | | 344,136 | | | | 473,112 | |
| Wendy C. Shiba | | | 67,927 | | | | 116,590 | | | | 184,517 | |
| Kenneth M. Smith | | | 68,487 | | | | 160,892 | | | | 229,379 | |
| Bernard P. Baert | | | 21,000 | | | | 17,072 | | | | 38,072 | |
| 18 Directors and executive officers as a group | | | 1,298,870 | | | | 1,362,132 | | | | 2,661,002 | |
| | |
| (1) | | Except as otherwise stated in the following notes, below, beneficial ownership of the shares held by each individual consists of sole voting power and sole investment power, or of voting power and investment power that is shared with the spouse of the individual. It includes the approximate number of shares credited to the named executives’ accounts in The PolyOne |
6
| our Retirement Savings Plan, a tax-qualified defined contribution plan. The number of shares of common stockshares allocated to these individuals is provided by the savings plan administrator in a statement for the period ending December 31, 2003,2006, based on the market value of the applicable plan units held by the individual. Additional shares of common stockshares may have been allocated to the accounts of participants in the savings plan since the date of the last statements received from the plan administrator. No Director, nominee or executive officer beneficially owned, on March 22, 2004,12, 2007, more than 1% of PolyOne’sour outstanding common shares, except Mr. Waltermire, who owned 1.19%.shares. As of that date, the Directors and executive officers as a group beneficially owned approximately 4.16%2.82% of the outstanding common shares. |
|
| (2) | | With respect to the Directors, except Mr. Waltermire, who is not eligible to participate in the Directors’ Deferred Compensation Plan, beneficial ownership includes shares held under the Directors’ Deferred Compensation Plan as follows: J.D. Campbell, 79,199102,933 shares; C.A. Cartwright, 39,30368,471 shares; G. Duff-Bloom, 60,17883,559 shares; W.R. Embry, 8,85932,764 shares; R.H. Fearon, 0 shares; R.A. Garda, 22,75236,892 shares; G.D. Harnett, 44,94889,115 shares; D.H. Hoag, 40,172 shares; W.F. Patient, 0E. J. Mooney, 9,749 shares; and F.M. Walters, 54,631.84,698 shares. |
|
| (3) | | Includes shares the individuals have a right to acquire on or before May 21, 200411, 2007. The executive officers named in the table (the “Named Executive Officers”) also have the right to acquire common shares upon the exercise of vested stock-settled stock appreciation rights as follows: J.D. Campbell, 54,000 shares; C.A. Cartwright, 33,000 shares; G. Duff-Bloom, 54,000 shares; W.R. Embry, 33,000 shares; R.A. Garda, 55,500 shares; G.D. Harnett, 55,500 shares; D.H. Hoag, 55,500 shares; W.F. Patient 352,000 shares; T.A. Waltermire, 857,483 shares; F.M. Walters, 48,000 shares; V.L. Mitchell, 327,761 shares; W.D.Mr. Newlin, 116,600 SARs; Mr. Wilson, 318,881 shares; W.C.42,000 SARs; Ms. Shiba, 70,313 shares; M.L. Rademacher, 119,159 shares;32,000 SARs; Mr. Smith, 29,800 SARs; and Mr. Baert, 25,000 SARs. The number of shares to be acquired cannot be determined because it depends on the market value of our common shares on the date of exercise and the Directors and executive officers as a group, 2,789,310 shares.applicable withholding taxes. |
12
The following table shows information relating to all persons who, as of March
22, 2004,12, 2007, were known by us to beneficially own more than five percent of
PolyOne’sour outstanding common shares based on information provided in Schedule 13Gs filed with the Securities and Exchange Commission (the “Commission”):
| | | | | | |
Name and Address
| | Number of
Shares
| | | % of
Shares
| |
FMR Corp. 82 Devonshire Street Boston, Massachusetts 02109 | | 12,974,133 | (1) | | 14.16 | % |
| | |
New York Life Trust Company, as Trustee for The PolyOne Corporation Retirement Savings Plan 51 Madison Avenue New York, New York 10010 | | 8,672,028 | (2) | | 9.5 | % |
| | |
Strong Capital Management, Inc. as Investment Advisor for Richard S. Strong 100 Heritage Reserve Menomonee Falls, WI 53051 | | 4,682,735 | (3) | | 5.1 | % |
| | | | | | | | | |
| | | Number of
| | | % of
| |
Name and Address | | Shares | | | Shares | |
| |
| Barclays Global Investors, NA | | | 6,639,933 | (1) | | | 7.2 | % |
45 Fremont Street
San Francisco, California 94105 | | | | | | | | |
| Barrow, Hanley, Mewhinney & Strauss, Inc | | | 5,992,320 | (2) | | | 6.5 | % |
2200 Ross Avenue, 31st Floor
Dallas, Texas75201-2761 | | | | | | | | |
| Dimensional Fund Advisors LP | | | 5,795,047 | (3) | | | 6.2 | % |
1299 Ocean Avenue
Santa Monica, California 90401 | | | | | | | | |
| New York Life Trust Company, Trustee | | | 5,566,350 | (4) | | | 6.0 | % |
51 Madison Avenue
New York, New York 10010 | | | | | | | | |
| FMR Corp. | | | 5,444,700 | (5) | | | 5.9 | % |
82 Devonshire Street
Boston, Massachusetts 02109 | | | | | | | | |
| |
| (1) | As of January 23, 2007, based upon information contained in a Schedule 13G filed with the Commission. Barclays Global Investors, NA, as an investment advisor and reporting on behalf of a group of affiliate entities, has sole voting power with respect to 6,277,281 of these shares and has sole dispositive power with respect to all of these shares. |
|
| (2) | As of February 17, 2004,9, 2007, based upon information contained in a Schedule 13G/A filed with the Commission. Barrow, Hanley, Mewhinney & Strauss, Inc. has sole voting power with respect to 2,729,400 of these shares and has sole dispositive power with respect to all of these shares. |
| |
| (3) | As of February 9, 2007, based upon information contained in a Schedule 13G/A filed with the Commission. Dimensional Fund Advisors LP, as an investment advisor, has sole voting power and sole dispositive power with respect to all of these shares. |
| |
| (4) | As of February 15, 2007, based upon information contained in a Schedule 13G/A filed with the Commission. New York Life Trust Company, as Trustee for The PolyOne Retirement Savings Plan and Excel Polymers Retirement Savings Plan, as a bank, has sole voting power and sole dispositive power with respect to all of these shares. |
|
| (5) | As of February 14, 2007, based upon information contained in a Schedule 13G/A filed with the Commission. FMR Corp., as a holding company reporting on behalf of its subsidiaries, has sole voting power with respect to 1,292,6000 of these shares and has sole dispositive power with respect to all of these shares. |
Share Ownership Guidelines
We have established share ownership guidelines for our non-employee Directors, executive officers and other elected corporate officers to better align their financial interests with those of shareholders by requiring them to own a minimum level of our shares. These individuals are expected to make continuing progress towards compliance with the guidelines and to comply fully within five years of becoming subject to the guidelines. These policies, as they relate to our Named Executive Officers, are discussed in the “Compensation Discussion and Analysis” section of this proxy statement. The required share ownership level for non-employee Directors is 17,000 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our executive officers and Directors, and persons who own more than 10% of a registered class of our equity
13
(2) | As of February 18, 2004, based upon information contained in a Schedule 13G filed with the Commission. New York Life Trust Company, as Trustee for The PolyOne Corporation Retirement Savings Plan and for various collective investment funds for employee benefit plans and other index accounts, as a bank, has sole voting power and sole dispositive power with respect to all of these shares. |
(3) | As of February 17, 2004, based upon information contained in a Schedule 13G filed with the Commission. Strong Capital Management, Inc. and Richard S. Strong have shared voting and shared dispositive power with respect to all of these shares. |
7
securities, file reports of ownership and changes in ownership with the Commission. Executive officers, Directors and greater than 10% shareholders are required by Commission rules to furnish us with copies of all forms they file. Based solely on our review of the copies of such forms received by us and written representation from certain reporting persons, we believe that, during 2006 and until the date of this proxy statement, all Section 16(a) filing requirements applicable to our executive officers, Directors and 10% shareholders were satisfied, except for one Form 4 filing for each of our executive officers relating to an award of stock appreciation rights on March 8, 2007, which were made two days after the due date. During 2006, we amended one Form 4 report that was timely filed but that omitted, due to a technical complication, a transaction line item relating to a purchase of shares by Mr. Newlin (which shares were reflected in the aggregate number of shares beneficially owned on the original filing).
14
Report of the Compensation Discussion and Governance Committee on Executive CompensationAnalysisThe
Introduction
Our executive compensation programs are approved and overseen by the Compensation and Governance Committee of the Board of Directors (the “Committee”)
, which is
currently comprisedcomposed entirely of
Gale Duff-Bloom, its Chairperson, David H. Hoag, Vice Chairperson, J. Douglas Campbell, Carol A. Cartwright, Wayne R. Embry, Robert A. Garda, Gordon D. Harnett, and Farah M. Walters.independent directors. The Committee is responsible for establishing PolyOne’shas selected and retained an independent compensation consultant, Towers Perrin (the “Consultant”). The Committee works in conjunction with the Consultant and benefit policieswith input from members of senior management, principally the Chairman, President and reviewing PolyOne’s philosophy regardingChief Executive Officer, the Chief Human Resources Officer, the Chief Financial Officer and the Chief Legal Officer.
This report contains management’s discussion and analysis of the compensation awarded to, earned by, or paid to the following executive remuneration to assure consistency with itsofficers (the “Named Executive Officers”)1(:
| | |
| • | Stephen D. Newlin — Chairman, President and Chief Executive Officer |
|
| • | W. David Wilson — Senior Vice President and Chief Financial Officer |
|
| • | Wendy C. Shiba — Senior Vice President, Chief Legal Officer and Secretary |
|
| • | Kenneth M. Smith — Senior Vice President, Chief Human Resources and Chief Information Officer |
|
| • | Bernard P. Baert — Senior Vice President & General Manager, Colors and Engineered Materials, Europe and Asia |
Executive Compensation Programs — Objectives and Overview
The objectives of our executive compensation programs are to: (1) attract, retain and motivate the management team who leads in setting and achieving the overall goals and
objectives of our company; (2) foster apay-for-performance culture by rewarding the achievement of specified financial goals and growth of our share price; and (3) align our goals and objectives with the interests of our shareholders by recognizing and rewarding business
strategy. Each year the Committee reviews market data to assess PolyOne’s competitive position with respect to all aspects of executive compensation and considers and approves changes in base salary and annualresults through incentive
levels for executive officers as well as all awards (including stock options, equity-based awards and long-term incentive plan awards) to executive officers and key employees. The Committee also reviews and approves annual and long-term performance criteria and goals at the beginning of each performance period and certifies the results at the end of each performance period. In addition, the Committee has oversight responsibilities for all of PolyOne’s broad-based compensation and benefit programs.
General Compensation Philosophy
The Committee believes
While we believe that pay should be administered on a total remuneration basis, with consideration of the value of all components of compensation. Total remunerationtotal compensation (which are identified in the 2006 Summary Compensation Table) should be valued and considered when making decisions regarding pay, the primary focus of our executive compensation program is on base salary, annual incentive and long term incentives. We believe that compensation opportunities should be competitive with the industry compensation practices of the companies we compete with for executive talent and serve to attract, retain, motivate and reward employees based upon their experience, responsibility, performance and marketability. Theythat total compensation should be affordable and fair to both employees and shareholders. Incentive
Our incentive programs should createfocus on the critical performance measures that determine our company’s overall success. For positions with significant business unit responsibilities, incentive
(1 Mr. William F. Patient served as PolyOne’s principal executive officer for a strong mutualityportion of interests between executives2006. He had been a Director and shareholders throughChairman of the useBoard since November 2003 and served as President and Chief Executive Officer from October 2005 to February 21, 2006, when Mr. Newlin became Chairman, President and Chief Executive Officer. Mr. Patient served as Lead Director of equity-basedthe Board of Directors from February 21, 2006 until his retirement at the Annual Meeting of Shareholders on May 25, 2006. The compensation andthat Mr. Patient received is disclosed in the selection2006 Summary Compensation Table. He did not participate in our annual or long-term incentive plans or receive the perquisites generally provided to executive officers. Consequently, the references to Named Executive Officers in this report do not apply to Mr. Patient.
15
programs also emphasize success at the business unit level, which often leads to Named Executive Officers at comparable levels being paid differently across the organization. The structure of
performance criteria that are consistent with PolyOne’s strategic objectives.Executive Compensation
PolyOne’s executive compensation program has the following principal components: base salary and annual incentive compensation and long-term incentive compensation. As an executive’s level of responsibility increases, a greater portion of his or her potential total remuneration is based on performance incentives (including stock-based awards) rather than on salary. This approach may result in changes in an executive’s total cash compensation from year to year if there are variations in PolyOne’s performance and/or the performance of PolyOne’s individual business units versus established goals.
The total remuneration programopportunities is designed to be competitivereward executives for the efficient execution of theirday-to-day responsibilities and attainment of short term results, balanced with the total remuneration programs of companies similar to PolyOne within both the specialty chemical industry and a broad-base of industrial companies and is based on the total remuneration programs of companies with which PolyOne competesneed for executive talent. To assess the competitive total remuneration programs of these other companies and to establish appropriate compensation comparisons, the Committee receives advice from an independent compensation consultant and reviews data that is based on the specialty chemical peer group as well as various published surveys.
Base Salaries
The Committee annually reviews the base salaries of executive officers. Prior to the meeting at which the annual review occurs, the Committee is furnished with data on the current total compensation of each executive, current marketplace data for comparable positions, individual performance appraisals and recommended adjustments by the Chief Executive Officer for each executive officer except himself. At the meeting, the Committee reviews all available data and considers and approves adjustments. In addition, the Committee reviews marketplace data for, and the performance of, the Chief Executive Officer and determines the appropriate adjustment.
8
Base salaries for executive officers traditionally are adjusted at the beginning of each year. In view of continuing difficult market conditions and performance that is below expected levels, no adjustments to base salaries were recommended or approved for 2004.
PolyOne accrues for base salary costs on a daily basis and payments to employees are made bi-weekly (normally 26 payments per year). This can create a timing difference between the accrued company cost and the payment to the employee. Approximately every twelve years, a twenty-seventh payment occurs due to the calendar. This will occur in 2004. We want shareholders to know in advance that as a result of this timing difference, the proxy statement in 2005 will report salaries that are 3.85% higher even though no change has been made in senior executive salaries and there has been no increase in accrued cost to the company.
Incentive Compensation
The Senior Executive PolyOne Annual Incentive Plan (the “PolyOne AIP”) provides for awards that are wholly contingent upon the attainment of performance goals established by the Committee. The PolyOne AIP provides for administration by a committee of outside directors but eliminates the Committee’s discretion to increase the amount of incentive awards. The Committee believes that the PolyOne AIP has, in the past, satisfied and will continue to satisfy the Internal Revenue Service’s requirements for “performance-based” compensation under Section 162(m). Under Section 162(m), performance-based compensation is considered a fully deductible expense and not subject to the deductibility limitation under current Internal Revenue Service regulations.
In the beginning of 2003, the Committee approved performance targets related to corporate Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and business unit operating income. PolyOne’s performance was insufficient to provide awards for EBITDA, and only three of PolyOne’s eight business units achieved operating income levels sufficient to provide for awards. For 2003, the Committee awarded no compensation under the PolyOne AIP to Messrs. Waltermire, Mitchell and Wilson and Ms. Shiba. Mr. Rademacher’s AIP award reflects only the incentive compensation earned for the performance of his business unit, as his award for corporate EBITDA performance was zero. Awards paid for qualifying businesses in 2003 ranged from 28% to 79% of target.
At its meeting on December 10, 2003, the Committee approved 2004 PolyOne AIP performance targets related to corporate debt reduction, free cash flow, operating income, and business unit operating income. A portion of the 2004 PolyOne AIP awards will be paid semi-annually based on performance achieved during the first six months of 2004, to reinforce the urgency of the corporation’s 2004 performance improvement imperatives.
Long Term Incentives
On March 24, 2003, the Committee approved awards to PolyOne’s executive officers under PolyOne’s 2003 – 2005 Strategic Improvement Incentive Plan to take effect on April 1, 2003. The awards were in the form of time-vested stock options and performance units based upon PolyOne’s three-year cumulative operating income for the period of 2003 to 2005. The final amount of the award will be adjusted based on a comparison of PolyOne’s sales revenue growth to a peer group index. The time-vested stock options have an exercise price higher than the fair market value of PolyOne common shares on the date of grant and a ten-year term. The options vest in increments over a three-year period following the date of grant, 35% in each of the first and second years and 30% in the third year. The amount scheduled to vest in the third year may vest earlier based upon PolyOne’s stock price performance. PolyOne limits the number of options awarded based on the typical practice of its peer group.
Performance awards are comprised of performance options and performance cash awards. Performance options are stock options that vest on the third anniversary of the date of grant and have a term of 48 months. These options also have an exercise price higher than the fair market value of PolyOne common shares on the
9
date of grant. Performance cash awards are cash payments based upon PolyOne’s operating income for the three-year period ending December 31, 2005. The final amount of the award will be adjusted based on a comparison of PolyOne’s sales revenue growth to a peer group index. The purpose of these awards is to encourage superior strategic business performance over time. These awards were granted under the PolyOne Corporation 1999 Incentive Stock Plan. As stated above, under Section 162(m), performance-based compensation is not subject to the deductibility limitation under current Internal Revenue Service regulations.
On December 10, 2003, the Committee approved grants effective December 11, 2003 under the PolyOne Corporation 2000 Stock Incentive Plan. PolyOne’s onlysustainable, long-term incentive program for 2004 will be Target Priced Stock Appreciation Rights (“SARs”). Target Priced SARs were granted with exercise terms of 36 months, and with vesting contingent upon the attainment of target prices of $8, $9 and $10 of PolyOne’s common stock. The purpose of PolyOne’s 2004 Target Priced SAR grants is to reinforce the importance of significant improvements in PolyOne’s returns to shareholders over the next three years.
Chief Executive Officer
At Mr. Waltermire’s request, in recognition of business conditions, his base salary was reduced by 10% to $621,600 effective February 1, 2003.
Mr. Waltermire participated in the PolyOne AIP and Strategic Improvement Incentive Plan under similar terms and conditions as other executive officers and as described above. The Committee did not approve an award for Mr. Waltermire under the 2003 PolyOne AIP.
All members of the Compensation and Governance Committee concur in this report.
THE COMPENSATION AND
GOVERNANCE COMMITTEE
OF THE BOARD OF DIRECTORS
Gale Duff-Bloom, Chairperson
David H. Hoag, Vice Chairperson
J. Douglas Campbell
Carol A. Cartwright
Wayne R. Embry
Robert A. Garda
Gordon D. Harnett
Farah M. Walters
February 25, 2004
10
success.
The following table
sets forthoutlines the
major elements of compensation
received for
the three years ended December 31, 2003 by PolyOne’s Chiefour Named Executive
Officer and the persons who were at December 31, 2003 the four other most highly paid executive officers.Summary Compensation Table
Officers. | | | | | | | | | | | | | | | | | | |
| | | | | | | |
Annual Compensation
| | | | | | |
| Element | | | Definition | | | Rationale |
Base Salary | | | • Fixed compensation
payable bi-weekly | | | Long Term Compensation• Standard market practice
• Intended to pay for completing
day-to-day job responsibilities
assigned to the position |
Annual Incentive Plan | | | • Variable, cash compensation that is earned when pre-established annual performance goals are achieved | | | • Standard market practice
• Limits fixed expenses; payment
is required only upon
achievement of specified
goals
• Builds accountability for
important annual financial goals |
Long-Term Incentive
Plan (2 Components) | | | | | | |
| | | | | | | |
60% — Cash-settled
Performance Units
| | | • Variable, cash compensation that is earned when
pre-established three-year financial goals are achieved | | | • Multi-year incentive is standard
market practice
• Emphasizes achievement of
long-term strategic goals and
objectives
• Limits fixed expenses; payment
is required only upon
achievement of specified goals
• Avoids stock dilution through
cash awards
|
40% — Stock-settled
Stock Appreciation
Rights | | | • Variable compensation that vests
only if, and grows in value as, our
share price rises
• Paid in PolyOne common shares | | | • Multi-year incentive is standard
market practice
• Limits fixed expenses; payment
is required only upon
achievement of specified goals
• Emphasizes stock price growth
• Vesting conditions require
growing stock price before any
value can be realized by
participant |
Retirement Plans | | | | | Awards
| |
| | Payouts
| | | | |
Name andU.S. Defined
Contribution PlansPrincipal Position
| | Year
| | Salary($)
| | Bonus($)
| | Other
Annual
Compen-
sation($)(1)
| | | Restricted• Qualified 401(k) defined
Stock
Awards($)(2)
contribution plan | | Options/
| • The qualified defined
SARs(# of contribution plan is a standard
Shares)(3)
tax-qualified benefit offered to
all employees subject to
limitations on compensation and
benefits under the Internal
Revenue Code |
| | LTIP
Payouts
(# of
Shares)
| | All
| | |
16
Other
Compen-
sation($)
| | | | | | |
Thomas A. Waltermire
President and
Chief Executive Officer
Compensation
| | 2003
2002
2001 | | 630,808
690,000
690,000 | | –0–
168,900
276,800 |
| Element | | (1
(1
(1 | )
)
)Definition | | –0–
–0–
705,528 | Rationale |
| | 509,740
299,200
271,000 | • Nonqualified excess 401(k) defined contribution plan | | –0– | • Restores benefits that are limited
–0– by the Internal Revenue Code
–0– in the qualified plan for most
highly-paid executives |
Belgium Defined
Contribution Plan | | 90,586
58,008
41,135 | (3)• Tax-efficient defined contribution plan | | | • Mr. Baert is a participant in a
(3) standard tax-efficient defined
(3) contribution plan provided to
most Belgium employees |
Defined Benefit Plans
(These plans have been closed to new participants since formation of PolyOne) | | | • Qualified defined benefit pension
plan
• Nonqualified, excess defined
benefit plan | | | • Messrs. Wilson and Smith are
participants in a legacy defined
benefit pension plan offered to
certain heritage employees
• Restores benefits that are
limited by the Internal
Revenue Code in the qualified
plan and applies to all eligible
plan participants; as of
December 31, 2004, this
benefit has been frozen |
Post-Retirement
Medical Plan
(This plan has been closed to new participants since formation of PolyOne) | | | • Capped Company-paid subsidy of premiums for medical coverage for retirees similar to coverage provided to active employees | | | • Messrs. Wilson and Smith are
participants in a legacy post-
retirement medical plan offered
to certain heritage employees |
Perquisites | | | • Car allowance
• Financial planning and tax
preparation
• Excess liability insurance
• Relocation benefits | | | • Standard market practice
• Relocation benefits assist
in attracting new executive
talent
• Other perquisites are
modest and are typical for
executives at comparable
companies |
| | | | | | |
Setting the Level of Compensation
We have designed our compensation programs to be competitive with companies of comparable size and industry as well as companies with whom we compete for executive talent. The Committee obtains advice from the Consultant relating to competitive salaries, annual incentives, and long-term incentives. Management and the Committee review the specific pay disclosures of the defined peer group of chemical companies as well as survey data of similarly-sized chemical and other companies, as provided by the Consultant. The Committee discusses and considers this information when making compensation decisions. This process is described in the “Compensation Oversight Processes” section of this report. The Committee manages compensation so as to align each of the pay elements with market practices.
The Committee targets base salaries at the median of observed market practice and sets annual and long-term incentive targets (incentive as a percent of salary) to approximate the market median. We believe the maximum potential annual incentive payouts (no award shall be greater than double the target award) are consistent with the typical market range around target awards.
17
Our actual awards of performance units and stock appreciation rights (“SARs”) are a product of the market data and other considerations. In 2006:
| | |
V. Lance Mitchell
Group Vice President,
Global Plastics
| • | We delivered 60% of the assigned long-term incentive target opportunity for a position, based upon competitive median long-term incentive practices, in the form of cash-settled performance units in order to avoid the dilution associated with share-based awards. |
|
| | 2003
2002
2001• | We delivered the remaining 40% of the assigned long-term incentive target opportunity in the form of stock-settled SARs because they align executive and shareholder interests and because they help preserve cash. |
|
| | 320,889
335,000
335,000• | | –0–
27,700
118,000 | | (1
(1
(1 | )
)
) | | –0–
–0–
342,432 | | 174,160
96,800
87,700 | | –0–
–0–
–0– | | 33,845
27,269
19,936 | (4)
(4)
(4)We assigned a value to a single performance unit and a single SAR based on the Black-Scholes option pricing model. We then determined the actual number of performance units and SARs by dividing the targeted dollar value allocated to each element by the value of a single performance unit and SAR, respectively. |
The following table summarizes the allocation of the compensation opportunity at target that was granted in 2006 to the Named Executive Officers (and not the compensation opportunity that could be earned in 2006), based upon the primary elements of compensation (2006 base salary, Annual Incentive Plan 2006 target opportunity and long-term incentive grants made in 2006, including performance units that will pay out in 2009, if earned). The compensation opportunity is consistent with the company’s overallpay-for-performance philosophy. Generally, employees at more senior levels in the organization, including the Named Executive Officers, have a greater proportion of their compensation tied to incentive compensation. Targeted pay opportunity levels align with the market in each individual pay element.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Proportionate Size of Primary Elements of Compensation | |
| Element | | | Newlin | | | | Wilson | | | | Shiba | | | | Smith | | | | Baert | |
| Base Salary | | | | 24 | % | | | | 36 | % | | | | 40 | % | | | | 40 | % | | | | 43 | % |
| Annual Incentive Opportunity | | | | 24 | % | | | | 18 | % | | | | 20 | % | | | | 20 | % | | | | 22 | % |
| Long-Term Incentive Opportunity* | | | | 52 | % | | | | 46 | % | | | | 40 | % | | | | 40 | % | | | | 35 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
W. David Wilson
Vice President and
Chief Financial Officer*
| | Long-term incentive relating to the performance units for the2006-2008 performance period would be paid in 2009, if earned. |
Benchmarking Competitive Compensation
Each year, we analyze competitive market compensation data relating to salary, annual incentive, and long-term incentive. Periodically, we also analyze competitive market compensation data relating to retirement benefits and perquisites.
In analyzing competitive market data, we draw from two independent sources. First, we review proxy statement disclosures of a peer group of similarly-sized U.S. chemical companies (listed below) to establish an estimate of market compensation for our most senior executives. This approach provides insight into explicit company practices at business competitors or companies facing similar operating challenges. However, it does not provide market information for positions below the senior management level, nor does it address competitors for talent outside the chemical industry.
18
| | 2003
2002
2001 | | 311,754
325,000
325,000 |
| Albemarle Corporation | | –0–
46,900
76,700Eastman Chemical | | (1
(1
(1Hercules Incorporated |
)
)
)Arch Chemicals, Inc. | | –0–
–0–
332,100 Company | | 169,260
94,000
85,800The Lubrizol Corporation |
| A. Schulman, Inc. | | –0–
–0–
–0–Ferro Corporation | | 40,360
24,102
19,371 | (5)
(5)
(5)RPM International Inc. |
| Cabot Corporation | | FMC Corporation | | Spartech Corporation |
| Chemtura Corporation | | Georgia Gulf Corporation | | The Valspar Corporation |
| Cytec Industries Inc. | | H.B. Fuller Company | | |
Note: Lyondell Chemical Company was considered a peer for the purpose of the2006-2008 performance unit plan, but given its growth in size over the period it has been removed from the comparison group.
Second, we review data from Towers Perrin’s Compensation Data Bank and other published surveys, as provided by the Consultant, to augment the peer proxy analysis and provide a more robust sense of market practices. To obtain comparability based on company size, the data either references a specific sample of companies or calibrates the pay of a broad sample of companies against company size. Specific benefits of using the survey data include:
• Addresses more than just the named executive officers;
• Provides target incentive levels;
• Includes similarly-sized chemical companies; and
• Considers similarly-sized companies across a broad range of industries.
This data is used as one of several inputs into management’s and the Committee’s deliberation on appropriate compensation levels. Other inputs include performance, scope of responsibilities, internal equity considerations and other factors.
Elements of Compensation
The following discussion provides additional details about the main elements of compensation for the Named Executive Officers.
Base Salary
As described above, our policy is to target base pay at the market median but does allow actual pay levels to deviate from target based on performance, responsibility, experience and marketability unique to each individual. Based on data provided by the Consultant, the salaries of the Named Executive Officers range from 93% to 104% of the market median for comparable positions.
Annual Incentive
The Senior Executive Annual Incentive Plan (the “Annual Plan”) was approved by shareholders in 2005 and includes a set of performance measures that can be used in setting bonuses under the plan. The Annual Plan determines how participants (including all Named Executive Officers) can earn annual cash awards. In 2006, the performance measures used for the corporate staff participants in the Annual Plan (including Messrs. Newlin, Wilson and Smith and Ms. Shiba) were company operating income (53% weighting with a $90 million performance target), company-controlled cash flow (34% weighting with a $93.4 million performance target) and equity investment performance (13% weighting with a 10% ROIC performance target). The performance measures used for Mr. Baert as a participant in the Annual Plan were business unit operating income (53% weighting with a $28 million performance target), company controlled cash flow (34% weighting with a $93.4 million performance target) and revenue growth in Asia (13% weighting with a 13% performance target).
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The definitions of certain performance measures are as follows:
| | |
Wendy C. Shiba (6)
Vice President,
Chief Legal Officer
| • | “Equity investment performance” is a measure of the Return on Invested Capital (ROIC) based on the earnings before taxes of our equity investments in two joint ventures, OxyVinyls, LP and SecretarySunbelt Chlor-Alkali Partnership. Through these equity investments, we realize a portion of the economic benefits of a base resin producer for PVC resin, one of our major raw materials. This performance measure was used for Messrs. Newlin, Smith and Wilson and Ms. Shiba. |
|
| | 2003
2002
2001• | “Company-controlled cash flow” is a measure of (operating income plus depreciation and amortization) plus/minus (changes in average working capital less capital expenditures, interest and other expenses). |
|
| | 286,188
300,000
38,654• | | –0–
63,200
75,000 | | (1
(1
(1 | )
)
) | | –0–
–0–
358,000 | | 128,200
67,700
12,318 | | –0–
–0–
–0– | | 30,460
12,000
–0– | (6)
(6)
(6)“Growth in Asia” is a measure of the revenue growth rate in Asia expressed as a percentage. |
The Committee chose these performance measures in order to incent profitability and promote consistency in operational performance. Goals were generally set so that individual business units needed to exceed 2005 performance to achieve a threshold (50% of target) level of attainment.
Consistent with our approach described above to approximate the market median in targeting annual incentives, the 2006 target bonus levels for the Named Executive Officers were: $700,000 for Mr. Newlin, $177,029 for Mr. Wilson, $168,885 for Ms. Shiba, $156,741 for Mr. Smith and an equivalent of $174,961 for Mr. Baert (whose compensation is based in Euros). These targeted levels are set at 100% of base salary for Mr. Newlin and 50% of salary earned during the year for each of the other Named Executive Officers.
Achievement of a performance goal at the threshold level would result in payment of 50% of the targeted award for that particular performance goal; achievement of a performance goal at the target level would result in payment of 100% of the targeted award for that performance goal; and, achievement at the maximum level or greater would result in payment of 200% of the targeted award for that goal. The awards are interpolated if performance falls between the levels.
The Annual Plan as it applies to the Named Executive Officers is structured to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). In order to qualify the amounts earned under the Annual Plan as “performance-based”, the Committee may exercise discretion only to reduce an award. The Annual Plan is structured so that achievement of the threshold level of performance in any of the measures described above will result in the funding of the plan at maximum. Actual awards are calculated using the Plan formula described above and if funded at maximum as described above, the maximum awards are reduced, as necessary, to deliver awards that are consistent across all of our management incentive plan participants. For a more detailed discussion of Section 162(m) of the Internal Revenue Code, see the “Tax Considerations” section of this report.
Performance measures for the Annual Plan have been revised for 2007. The purpose of the revision was to simplify and clarify the Plan, providing even greater focus on those metrics most important to creating shareholder value. Specifically, we have increased the emphasis on operating income on both a business unit and corporate basis while continuing to focus on cash flow. In order to emphasize controllable results of our operating businesses, the financial impact of our equity investments will not be included in the performance measures for the 2007 Annual Plan.
Long-Term Incentive
The 2005 Equity and Performance Incentive Plan was approved by shareholders in 2005 and permits a variety of types of incentive awards. In January 2006, long-term incentive awards were
20
granted using two vehicles. Sixty percent of the award’s value was in the form of performance units for the performance period2006-2008, with the remaining 40% in the form of stock-settled SARs.
(1) Cash-Settled Performance Units
The performance units will be paid in cash, subject to achievement of three types of performance goals discussed below. Each of the following performance measures are weighted equally (i.e., at 331/3%). The awards represented 60% of the total long-term incentive opportunity. The performance units granted in 2006 are subject to the following performance measures and goals for the three-year period from January 1, 2006 through December 31, 2008:
| | | | | | | | |
Michael L. Rademacher
Vice President and
General Manager,
Distribution
| • | Return on Invested Capital (ROIC), modified based on our performance versus a group of chemical companies (consisting of the same peers as reported under the “Benchmarking Competitive Compensation” section of this report but including Lyondell Chemical Company) |
|
| | 2003
2002
2001• | | 238,496
250,000
250,000 | | 64,500
93,000
37,500 | | (1
36,462
(1 | )
(8)
) | | –0–
–0–
255,348 | | 106,780
56,400
51,100 | | –0–
–0–
–0– | | 25,922
9,506
2,188 | (7)
(7)
(7)Cash Flow (EBITDA plus non-cash special charges, cash distributions from equity investments and net divestment proceeds, less earnings from equity investments, capital expenditures, cash taxes, cash interest, cash for restructuring plus changes in working capital and accrued expenses) |
• Ratio of Debt/EBITDA (earnings before interest, taxes, depreciation and amortization)
The Committee selected these performance measures in order to drive improvements in overall company profitability, promote consistency in operational excellence and drive a reduction in overall company debt while improving earnings. Generally, the Committee sets the target levels for the performance measures consistent with the levels established under the projections for our3-year financial plan. The Committee believes that the budgeted levels reflect challenging but obtainable targets. If the targeted level of achievement for each performance measure were obtained, this would represent a significant improvement over the levels attained for previous years. In setting the applicable target levels, the Committee may consider how achievement of the performance criteria could be impacted by events expected to occur in the coming year(s).
If we were to achieve all of these target performance levels, a participant would earn a target-level award; if we were to attain only the threshold performance levels, only 50% of the target award would be earned; and if we were to attain the maximum (or better) performance levels, the participant would earn 200% of the target award. If our performance fell between the threshold and target or between target and maximum, earnings under the plans would be interpolated for the ROIC and Cash Flow measures. There is no interpolation for the Debt/EBITDA measure. Performance under each measure is evaluated and the awards are determined separately (i.e., a participant can earn performance units for performance in one, two or all three measures).
(2) Stock-Settled SARs
To reinforce our ongoing commitment to enhancing shareholder returns, 40% of the long-term incentive opportunity awarded in January 2006 to executives, including the Named Executive Officers (other than Mr. Newlin who received a grant upon his hire date in February 2006), consists of SARs that, when exercised by the holder, are settled in our common shares. The SARs granted in January to all Named Executive Officers, except Mr. Newlin, have a base price of $6.51 and the SARs granted in February to Mr. Newlin have a base price of $9.185. All SARs granted in 2006 have an exercise term of seven years and vest upon the attainment of target prices (sustained for three consecutive trading days) for our common shares as follows: 1/3 @ $7.50; 1/3 @ $8.50 and1/3 @ $10.00 (with a minimum vesting period of one year from the date of grant).
21
We believe the SAR awards include more rigorous vesting conditions than are typically seen in the market for SARs/stock options, reinforcing our commitment to aligning pay and performance for executives. The SARs will vest only if the stock price hurdles mentioned above are attained and in no event will any SARs vest sooner than one year after grant, regardless of how our stock price performs. The SARs expire seven years after grant, which is shorter than typical market practice.
We do not and have not otherwise “backdated” the exercise or base price of any stock option or SAR. We have reviewed the merits of setting the exercise price of an option or base price of a SAR based on the price on the day preceding the grant and will continue with this process. Additional information regarding this matter can be found in the “Timing with Respect to Equity Award Grants” section of this report.
We did not make traditional long-term incentive grants for the2004-2006 performance period. Instead, in order to provide an incentive for senior management to achieve near-term improvement in the price of our common shares, in December of 2003, the Committee approved an incentive for senior leaders and key employees. The award consisted entirely of target-priced SARs having a three-year life and vesting upon the attainment of target prices (sustained for three consecutive trading days) for PolyOne common shares as follows: 1/3 @ $8.00; 1/3 @ $9.00 and 1/3 @ $10.00. The SARs had a base price equal to $6.14 and would be settled in our common shares. These SARs expired at the end of 2006 with 2/3 of the SARs having vested and 1/3 of the SARs being “in the money” but not vested due to the failure to achieve the target prices established.
For 2007, the long-term incentive awards will maintain the same general design as in 2006. The proportion of performance units to SARs, however, has changed from 60% performance units and 40% SARs to 50% performance units and 50% SARs, to better align our interests with those of shareholders. Minor modifications have also been made to the performance unit measures for the2007-2009 performance period. Specifically, we have simplified the design of the 2007 long-term incentive plan by having only one performance unit measure which is focused on the profitability of our operating business units, as measured by growth in operating income. Further, in assigning a value to a single performance unit and a single SAR (to determine the actual number of performance units and SARs to be granted), we have switched from the Black-Scholes option pricing model to using several capital market assumptions by applying Towers Perrin’s binomial valuation methodology.
Retirement Benefits
We offer a defined contribution retirement benefit to all U.S. employees through an Internal Revenue Code tax-qualified profit sharing/401(k) plan (the “Qualified Savings Plan”). The Qualified Savings Plan provides employees with individual retirement accounts funded by (1) an automatic Company-paid contribution of 2% of eligible earnings for all employees, (2) a Company-paid match on employee 401(k) contributions equal todollar-for-dollar on the first 3% of earnings the employee contributes plus $0.50 per dollar on the next 3% of earnings the employee contributes, and (3) for certain heritage employees, an additional automatic company-paid contribution of up to 4% of eligible earnings (of the Named Executive Officers, only Messrs. Smith and Wilson receive this contribution in the amount of 3.25% and 4%, respectively). The Internal Revenue Code limits employee contributions to $15,000 and earnings upon which employee/company contributions are based to $220,000 in 2006.
The PolyOne Supplemental Retirement Benefit Plan (the “Nonqualified Savings Plan”) is an unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan, but without the Internal Revenue Code contribution and earnings limitations. The benefits under the
22
Nonqualified Savings Plan are offset by the Qualified Savings Plan. Together these plans are intended to provide the Named Executive Officers with retirement income equivalent to that provided to all other employees under the Qualified Savings Plan. As a result, the Named Executive Officers can expect a retirement income that replaces a portion of their income while employed similar to that received by all other employees participating in the Qualified Savings Plan who are not impacted by the Internal Revenue Code limitations of the Qualified Savings Plan.
Mr. Baert is based outside the United States and does not participate in the Qualified Savings Plan or the Nonqualified Savings Plan. Mr. Baert participates in a standard defined contribution retirement benefit plan generally provided to all Belgium employees (except that some employees hired prior to May 2003 (other than Mr. Baert) elected to remain in the Belgium defined benefit plan previously offered as the standard retirement plan). The plan provides employees with individual retirement accounts funded by (1) an automatic Company paid contribution of 5% of base pay up to a salary limit plus 15% of base pay in excess of the salary limit, and (2) employee contributions of 5% of base pay above that salary limit. The salary limit, which is indexed annually, was €38,200 for 2006.
Messrs. Smith and Wilson are also eligible, along with certain other legacy employees, to receive pension payments under a company-funded Internal Revenue Code qualified defined benefit pension plan as well as an unfunded, nonqualified defined benefit pension plan (the “Qualified Pension Plan” and “Nonqualified Pension Plan”, respectively). In addition, upon becoming retirement eligible (55 years of age with 10 years of service), Messrs. Smith and Wilson will be eligible to receive certain retiree medical benefits. These plans existed prior to our formation in 2000 through the consolidation of The Geon Company and M.A. Hanna Company and generally benefited all nonunion employees of The Geon Company.
The amount of the Named Executive’s pension depends on a number of factors including monthly Final Average Earnings (“FAE”) and years of benefit service to us (“Benefit Service”). The Qualified Pension Plan provides a monthly lifetime benefit equal to 1.15% times FAE times Benefit Service plus 0.45% times FAE in excess of Covered Compensation (as defined by the Internal Revenue Code) times Benefit Service limited to 35 years.
The Nonqualified Pension Plan is similar to the Nonqualified Savings Plan in that it restores benefits lost in the Qualified Pension Plan due to Internal Revenue Code limitations on earnings and benefits. The Nonqualified Pension Plan benefit formula is the same as the Qualified Pension Plan except without the Internal Revenue Code qualified plan earnings limitations. The Nonqualified Pension Plan benefit is offset by the Qualified Pension Plan benefit.
The Qualified Pension Plan and Nonqualified Pension Plan were frozen to new entrants effective December 31, 1999. Benefit Service was frozen effective December 31, 2002 in both plans. In response to Internal Revenue Code Section 409A, the Nonqualified Pension Plan accrued benefit was temporarily frozen effective December 31, 2004. Any future decisions regarding the Nonqualified Pension Plan will be delayed until final guidance relating to Section 409A of the Internal Revenue Code is released. Earnings are not frozen in the Qualified Pension Plan so participants, including Messrs. Smith and Wilson, can continue to accrue additional benefits under that plan.
Messrs. Newlin and Baert and Ms. Shiba do not participate in a defined benefit plan.
Perquisites
We provide a limited number of perquisites to the Named Executive Officers, which we believe are competitive with the companies with which we compete for executive talent. These perquisites for those Named Executive Officers based in the United States, include a monthly car allowance,
23
reimbursement of expenses for financial planning and tax preparation, an annual physical examination, and group insurance providing excess liability umbrella insurance coverage in an amount equal to $5 million. For Mr. Baert, perquisites typical and competitive with companies in Europe include a company provided automobile, meal and entertainment allowance, reimbursement of expenses for financial planning and tax preparation, and group insurance providing excess liability umbrella insurance coverage in an amount equal to $5 million. The specific amounts attributable to perquisites for 2006 are disclosed in the 2006 Summary Compensation Table.
We reimbursed Mr. Newlin for reasonable expenses related to lodging, meals and travel between his residence and work location (Avon Lake, Ohio) during his first 90 days of employment. Mr. Newlin is also eligible for reimbursement of his relocation expenses under our standard relocation plan. During 2006, we reimbursed Mr. Newlin for expenses associated with transporting household and personal goods to a temporary home that he purchased near our headquarters.
We also provide other benefits such as medical, dental and life insurance and disability coverage to eachU.S.-based Named Executive Officer, which are identical to the benefits provided to all other eligible U.S.-based employees. Medical, dental and life insurance coverage for Mr. Baert is identical to the benefits provided to all other Belgium-based employees. We also provide vacation and paid holidays to all employees, including the Named Executive Officers. The Named Executive Officers are eligible for the following vacation: Messrs. Newlin and Smith — five weeks, Mr. Wilson — six weeks, Mr. Baert — 26 days, and Ms. Shiba — four weeks.
We do not provide or reimburse for personal country club memberships for any Named Executive Officer. We do maintain a corporate membership to a country club that is used for customer entertainment and other business purposes. We pay the monthly dues for this membership and incur expenses only for these business purposes. Any personal use of this facility by a Named Executive Officer is at the officer’s personal expense, with no incremental cost to us.
Compensation Oversight Processes
Salary Adjustments
During the fourth quarter, the Committee reviews executive compensation marketplace data provided by the Consultant. This report highlights trends in executive compensation and benchmarks our executive compensation compared to our peer group and the market in general. In addition, the Committee reviews tally sheets that contain information regarding the executives’ total annual compensation, termination benefits and wealth accumulation. A more detailed description of the tally sheets is provided under the heading “Review of Tally Sheets.”
In the first half of the calendar year, based upon individual performance and results achieved, the Chief Executive Officer recommends for the Committee’s review and approval specific salary adjustments for each of the executive officers, including the Named Executive Officers. The Chief Executive Officer makes his recommendations in conjunction with the marketplace data and input provided by the Consultant. The Committee sets the target compensation at or near the median, with adjustments to account for our specific facts and circumstances. Based upon the Chief Executive Officer’s recommendation, in May 2006, the Committee increased the salaries of the Named Executive Officers.
Mr. Newlin’s 2006 salary was established by the Committee in February 2006 by the terms of his employment agreement. The Committee considered recent compensation for the role, reviewed marketplace data and a pro forma tally sheet provided by their independent advisor to ensure both the fairness and the competitiveness of the total compensation package. In the Committee’s judgment, the total compensation package, as described under the heading “Employment Agreement
24
of the Chief Executive Officer,” was appropriate in order to attract the caliber of executive the Committee was seeking.
Grants of Plan-Based Awards
In the fourth quarter, the Committee reviewsperiod-to-date performance and estimates of incentive payouts for the in-progress performance periods. In the first quarter of the following year, the Committee evaluates actual performance against pre-set goals and determines earnings under just-completed plan periods.
In addition, in the fourth quarter, the Committee and management review competitive incentive data provided by the Consultant. Management develops preliminary recommendations for eligibility, award opportunities, performance measures and goals for the plan periods to commence the subsequent year for the Committee’s review. The Committee approves final terms in the first quarter of the subsequent year.
Review of Tally Sheets
The Committee and management have reviewed and considered tally sheets in connection with pay deliberations. Tally sheets are created collaboratively by the Consultant and our human resources department.
The tally sheets provide information regarding the Named Executive Officers’ total annual compensation, termination benefits and wealth accumulation. Total annual compensation includes: salary, annual incentive, long-term incentive, perquisites, and retirement benefits. This information is comparable to the amounts reported in the 2006 Summary Compensation Table. Payments under various forms of termination are reviewed and disclosed elsewhere in this proxy statement.
In aligning the overall program with market practices, benchmarking against the market occurs, but is limited in scope to the elements considered as compensation. The process of reviewing tally sheets began in late 2006. We have committed to annually review tally sheets and use the information in connection with compensation related decisions.
Tax Considerations
Cash compensation, such as base salary or annual incentive compensation, is taxable to the recipient as ordinary income when earned, unless deferred under a company-sponsored deferral plan. Deferrals under tax-qualified plans, such as a 401(k) plan, do not affect our current tax deduction. Deferrals under supplemental executive deferral plans delay our tax deduction until the deferred amount (and any accumulation thereon) is paid. Stock-settled SARs are generally taxable as ordinary income when exercised. We realize a tax deduction at that time. The Committee does review potential tax implications before making decisions regarding compensation.
Management and the Committee are aware of Section 162(m) of the Internal Revenue Code, which generally limits the deductibility of executive pay in excess of one million dollars, and which specifies the requirements for the “performance-based” exemption from this limit. The Committee generally manages our incentive programs to qualify for the performance-based exemption. It also reserves the right to provide compensation that does not meet the exemption criteria if, in its sole discretion, it determines that doing so advances our business objectives.
25
Accounting Considerations
When reviewing preliminary recommendations and in connection with approving the terms of a given incentive plan period, management and the Committee review and consider the accounting implications of a given award, including the estimated expenseand/or dilutive considerations. Depending upon the type of accounting treatment associated with an incentive plan design, management and the Committee may alter or modify the incentive award due to the accounting treatment if the award (and the related accounting consequences) were to adversely affect our financial performance.
Employment Agreement of the Chief Executive Officer
On February 13, 2006, we entered into an agreement with Mr. Newlin, under which he agreed to serve as our Chairman, President and Chief Executive Officer. The agreement provides for Mr. Newlin’s initial base salary of $700,000, a signing bonus of $600,000, a grant of 200,000 shares of restricted stock, and for Mr. Newlin’s participation in our various long-term incentive and benefit plans in effect from time to time during the term of his employment. Mr. Newlin also received a grant of a two-year cash incentive, consisting of phantom units, with each unit being equal in value to one share of our common stock. The phantom units will be paid in cash, if earned, and are subject to the achievement of specified performance goals over a two-year period(2006-2007).
In addition, the agreement provides for certain payments upon termination of Mr. Newlin’s employment, as described more fully in the “Potential Payments Upon Termination orChange-in-Control” section of this proxy statement.
Termination Payments for Other Named Executive Officers
Effective May 25, 2006, the Committee approved an Executive Severance Plan that is designed to provide severance protection to certain officers who are expected to make substantial contributions to our success and thereby provide for stability and continuity of operations. Under the terms and conditions of the Executive Severance Plan, officers are entitled to receive Severance Payments upon their termination of employment for reasons other than cause, death or disability. The plan details and estimates of these payments are provided in the “Potential Payments Upon Termination orChange-in-Control” section of this report.
The payments are to be made in compliance with Section 409A of the Internal Revenue Code. These severance benefits are contingent upon our receipt of a signed release of all claims against us and signed non-compete, non-solicitation and non-disparagement agreements.
Change in Control Payments
We have entered intochange-in-control (“CIC”) agreements with all of our elected corporate officers, including each of the Named Executive Officers. These agreements are designed to provide severance protection should a change in control of PolyOne occur and the executive officer’s employment is terminated either by us without cause or by the executive for good reason (as defined in the agreements). Generally, a change in control will be deemed to have occurred if (1) any person becomes the beneficial owner of 25% or more of the combined voting power of our outstanding securities (subject to certain exceptions); (2) there is a change in the majority of our Board of Directors; (3) certain corporate reorganizations occur where the existing shareholders do not retain more than 60% of the common shares and combined voting power of the outstanding voting securities of the surviving entity; or (4) there is shareholder approval of a complete liquidation or dissolution of PolyOne.
26
These agreements are intended to provide for continuity of management in the event of a change in control. The agreements are automatically renewed each year unless we give prior notice of termination of the CIC agreement. The agreements provide that covered executive officers could be entitled to certain severance benefits. The details of the severance payment and benefits are provided in the “Potential Payments Upon Termination orChange-in-Control” section of this report.
In order to provide additional protection in the event of a change in control, our 2006 equity awards and Annual Incentive Plan provide for accelerated benefits in the event of a change in control. In the event of a change in control and a termination of the executive’s employment by us without cause or by the executive for good reason (as defined in the agreements), the SARs remain exercisable for their full term. Thesechange-in-control provisions affect all participants in those programs, including the Named Executive Officers.
Compensation Policies
Timing with Respect to Equity Award Grants
In recent years, including 2006, the base price of SARs has been set according to our normal practice as outlined in the 2005 Equity and Performance Incentive Plan and is based on the average of the high and low price of our common shares on the trading day immediately before the day the award was approved by the Committee. This practice allows the Committee to know the actual base price at the time of approval. Because the base price could be different than the closing price on the day of the grant, the pricing difference is explained in the 2006 Grants of Plan-Based Awards table in this proxy statement. Further, if we are in possession of material information that has not been publicly disclosed, the Committee will not grant equity awards until all such information is available to the public.
Stock Ownership Guidelines
In order to better align their financial interests with those of shareholders, we believe our executives should own a meaningful number of our shares. We have adopted share ownership guidelines specifying a minimum level of share ownership for all executives, including all Named Executive Officers. The specific levels of share ownership for the Named Executive Officers are noted in the following table. Executives are expected to accumulate the specified shares within five years of their becoming subject to the policy. The applicable guidelines are reduced after age 55 by 10% of the original level of ownership each year for five years.
In general, shares counted toward required ownership include shares directly held and shares vested in our benefit or deferral plans (including phantom shares under our nonqualified deferral plan).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Element | | | Newlin | | | | Wilson | | | | Shiba | | | | Smith | | | | Baert | |
| Share Ownership Target (in shares) | | | | 290,000 | | | | | 85,000 | | | | | 67,500 | | | | | 65,000 | | | | | 48,000 | |
Total Share Ownership as of3/12/07 | | | | 219,300 | | | | | 144,546 | | | | | 67,927 | | | | | 75,538 | | | | | 21,000 | |
| Attainment Status | | | | 75.6 | % | | | | 170.1 | % | | | | 100.6 | % | | | | 116.2 | % | | | | 43.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Note: Ownership targets have been reduced by 10% for Ms. Shiba and 20% for Mr. Baert, according to the applicable guidelines pertaining to age reduction as discussed above.
27
Repayment of Earned Incentives upon Restatement of Financial Results
We have has adopted a policy that is consistent with the requirements of the Sarbanes-Oxley Act of 2002, which requires the Chief Executive Officer and Chief Financial Officer to reimburse us for any awards received during the twelve-month period following the release of financial results that subsequently require an accounting restatement due to material noncompliance with any financial reporting requirement if they are subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002.
Conclusion
Our executive compensation programs are competitive in the marketplace and linked to our performance. These programs allow us to attract and retain high-caliber executives. We believe the design of our compensation plans and the relative mix of compensation elements successfully motivates our executives and aligns both the short-term and long-term interests of employees and shareholders.
28
The following table sets forth the compensation for the fiscal year ended December 31, 2006 of our principal executive officer, former principal executive officer, principal financial officer and our other three most highly compensated executive officers.
2006 SUMMARY COMPENSATION TABLE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Change in Pension
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Value and
| | | | | | |
| | | | | | | | | | | | | | | | | | | Non-
| | | Nonquali-
| | | | | | |
| | | | | | | | | | | | | | | | | | | Equity
| | | fied
| | | | | | |
| | | | | | | | | | | | | | | | Option/
| | | Incentive Plan
| | | Deferred
| | | All Other
| | | |
| | | | | | | | | | | | | Stock
| | | SAR
| | | Compen-
| | | Compensation
| | | Compensa-
| | | |
Name and Principal
| | | | | | Salary
| | | Bonus(4)
| | | Awards
| | | Awards(7)
| | | sation(8)
| | | Earnings(9)
| | | tion
| | | Total
|
| Position | | | Year | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | | | ($) |
Stephen D. Newlin, Chairman, President and Chief Executive Officer(1) | | | | 2006 | | | | $ | 589,615 | | | | $ | 600,000 | | | | $ | 505,374 | (5) | | | $ | 558,936 | | | | $ | 959,700 | | | | | 0 | | | | $ | 103,725 | (10) | | | $ | 3,317,350 | |
William F. Patient, Former Chairman, President and Chief Executive Officer(2) | | | | 2006 | | | | | 68,833 | | | | | 50,000 | | | | | 20,833 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 139,666 | |
| W. David Wilson, Senior Vice President and Chief Financial Officer | | | | 2006 | | | | | 354,058 | | | | | 50,000 | | | | | 75,561 | (6) | | | | 158,724 | | | | | 242,707 | | | | | 0 | | | | | 81,711 | (11) | | | | 962,761 | |
| Wendy C. Shiba, Senior Vice President, Chief Legal Officer and Secretary | | | | 2006 | | | | | 337,769 | | | | | 50,000 | | | | | 59,052 | (6) | | | | 120,905 | | | | | 231,541 | | | | | 0 | | | | | 42,859 | (12) | | | | 842,126 | |
| Kenneth M. Smith, Senior Vice President, Chief Human Resources and Chief Information Officer | | | | 2006 | | | | | 313,481 | | | | | 50,000 | | | | | 52,914 | (6) | | | | 112,084 | | | | | 214,891 | | | | | 0 | | | | | 59,109 | (13) | | | | 802,479 | |
Bernard P. Baert, Senior Vice President & General Manager, Colors and Engineered Materials, Europe and Asia(3) | | | | 2006 | | | | | 349,999 | | | | | 0 | | | | | 53,125 | (6) | | | | 105,333 | | | | | 219,576 | | | | | 0 | | | | | 69,043 | (14) | | | | 797,076 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | Indicates perquisites | Mr. Newlin was elected Chairman, President and other personal benefitsChief Executive Officer, effective February 21, 2006. |
|
| (2) | | Mr. Patient served as our Chief Executive Officer for a portion of 2006. He had been a Director and Chairman of the Board since November 2003 and served as President and Chief Executive Officer from October 6, 2005 to February 21, 2006, when Mr. Newlin became Chairman, President and Chief Executive Officer. Mr. Patient did not exceedparticipate in our annual or long-term incentive plans or receive the lesserperquisites generally provided to our executive officers. The total compensation received by Mr. Patient in 2006, as reflected in the 2006 Summary Compensation Table, includes: (a) salary earned for the period of time in 2006 during which Mr. Patient served as Chairman, President and Chief Executive Officer ($50,000); (b) director fees paid in cash ($18,833); (c) a one-time recognition award, as described in footnote (4) below ($50,000); and (d) like our other non-employee directors, an award of fully-vested PolyOne common shares with a value of $20,833, which represents the award of common shares with a value of $50,000 or 10%granted to the other non-employee Directors, pro-rated for the portion of the total salary and bonusyear for which he served as a Director. |
29
| | |
| (3) | | Mr. Baert’s compensation is based in Euros. The conversion rate used for purposes of converting the Euros earned by Mr. Baert into dollars for purposes of this table was €1.00 = $1.25559, which is the conversion rate used in our Annual Report onForm 10-K for the fiscal year shown. |
(2) | The total number of restricted shares held and the value of those shares as ofended December 31, 2003,2006. |
|
| (4) | | Amounts in this column include a signing bonus of $600,000 for Mr. Newlin, a one-time recognition award in the amount of $50,000 to each of Ms. Shiba and Messrs. Wilson and Smith in recognition of the additional duties and responsibilities assumed in connection with executive and operating matters during the CEO-transition period, and a one-time recognition award in the amount of $50,000 to Mr. Patient in recognition of his leadership and contributions during the CEO-transition period. |
|
| (5) | | This reflects a restricted stock award granted in 2006 to Mr. Newlin under our 2005 Equity and Performance Incentive Plan (the “Equity Plan”) as part of his hiring package with a compensation cost for 2006 of $505,374. The amount reflected in the table includes the dollar amount recognized for financial statement reporting purposes for 2006 with respect to the award computed in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). Additional information regarding the assumptions used in determining the cost reflected in the table can be found in Note Q of the Notes to the Consolidated Financial Statements contained in our Annual Report on Form10-K for the fiscal year ended December 31, 2006. This grant is described more fully in the narrative following the 2006 Grants of Plan-Based Awards table in this proxy statement. |
|
| (6) | | This reflects the compensation cost under SFAS 123(R) in 2006 of performance shares granted in 2005. Additional information regarding the assumptions used in determining the costs reflected in the table can be found in Note Q of the Notes to the Consolidated Financial Statements contained in our Annual Report onForm 10-K for the fiscal year ended December 31, 2006. These performance shares are described in more detail in footnote (5) to the 2006 Outstanding Equity Awards at Fiscal Year-End table. |
|
| (7) | | This column includes the grants of target-priced, stock-settled stock appreciation rights granted in 2006 to the Named Executive Officers under our Equity Plan. The cost of these awards as reflected in the table was based on the year-end closing pricedollar amount recognized for financial statement reporting purposes for 2006 with respect to these awards, computed in accordance with SFAS 123(R). These grants are described more fully in the narrative following the 2006 Grants of $6.39 per sharePlan-Based Awards table and in the “Compensation Discussion and Analysis — Elements of PolyOne, was 575,800 sharesCompensation — Stock-Settled SARs” section in this proxy statement. This column also reflects for Messrs. Wilson, Smith and $3,679,362, respectively.Baert and Ms. Shiba the dollar amount recognized for financial statement reporting purposes in 2006 with respect to awards granted in prior years. Additional information regarding the assumptions used in determining the costs reflected in the table can be found in Note Q of the Notes to the Consolidated Financial Statements contained in our Annual Report onForm 10-K for the fiscal year ended December 31, 2006. |
| |
Amounts for 2001, except for Ms. Shiba, represent(8) | | This column reflects amounts earned by the numberNamed Executive Officers under the Senior Executive Annual Incentive Plan (the “SEAIP”). The terms of shares awarded multiplied by $7.38, the closing share price onSEAIP are described more fully in the datenarrative following the 2006 Grants of grant. Amount for 2001 for Ms. Shiba representsPlan-Based Awards table and in the number“Compensation Discussion and Analysis — Elements of shares awarded multiplied by $8.95, the closing share price on the dateCompensation — Annual Incentive” section of grant.this proxy statement. |
| |
Dividends(9) | | Among the Named Executive Officers, only Mr. Wilson and Mr. Smith participate in a company-funded qualified defined benefit pension plan and an unfunded, nonqualified defined benefit pension plan (the “Qualified Pension Plan” and “Nonqualified Pension Plan,” respectively) that existed prior to our formation in 2000 through the consolidation of The Geon Company and M.A. Hanna Company. Although shown as $0 in the above table, the aggregate actuarial present value of the accumulated benefits under the Qualified Pension Plan and the Nonqualified Pension Plan actually decreased during 2006 by $11,727 for Mr. Wilson and by $8,412 for Mr. Smith. Above-market or preferential earnings are paid on restricted shares to the same extent that dividends are paid on PolyOne’s common shares.not available under any of our non-qualified deferred compensation plans. |
(3) | | |
| (10) | | Amounts under “All Other Compensation” for Mr. WaltermireNewlin include taxgross-ups on personal benefits (including a gross up on a moving allowance described below) in the amount of $23,229, PolyOne’s cash contributions to PolyOne’sour qualified savings plan in the amountsamount of $24,000 for 2003, $11,000 for 2002 and $10,200 for 2001 and amounts accrued$14,300, PolyOne’s cash contributions under PolyOne’sour non-qualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the qualified savings plan in the amountsamount of $66,586 for 2003, $47,008 for 2002$22,675 and $30,935 for 2001.excess liability umbrella insurance |
30
(4) | | |
| | coverage in the amount of $987. Mr. Newlin also received perquisites in 2006, reflected in the table, with the following incremental costs: moving allowance ($18,155), car allowance ($12,129, based on $1,200 per month, pro-rated), and financial planning and tax preparation expenses ($12,250). |
|
| (11) | | Amounts under “All Other Compensation” for Mr. MitchellWilson include taxgross-ups on personal benefits in the amount of $6,593, PolyOne’s cash contributions to PolyOne’sour qualified savings plan in the amountsamount of $20,472 for 2003, $11,000 for 2002 and $10,200 for 2001 and amounts accrued$23,100, PolyOne’s cash contributions under PolyOne’sour non-qualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the qualified savings plan in the amountsamount of $13,373 for 2003, $16,269 for 2002$27,410, excess liability umbrella insurance coverage in the amount of $987 and $9,736 for 2001.the current value of future expected retiree medical coverage in the amount of $1,215. Mr. Wilson also received perquisites in 2006, reflected in the table, with the following incremental costs: car allowance ($14,400) and financial planning and tax preparation expenses ($8,006). |
(5) |
| (12) | | Amounts under “All Other Compensation” for Mr. WilsonMs. Shiba include taxgross-ups on personal benefits in the amount of $2,336, PolyOne’s cash contributions to PolyOne’sour qualified savings plan in the amount of $23,701 for 2003, $11,000 for 2002 and 10,200 for 2001 and amounts accrued$14,300, PolyOne’s cash contributions under PolyOne’sour non-qualified retirement plan providing for benefits in excess of the amounts permitted to be contributed under the qualified savings plan in the amountsamount of $16,659 for 2003, $13,102 for 2002$11,036 and $9,171 for 2001. |
(6) | excess liability umbrella insurance coverage in the amount of $987. Ms. Shiba began serving as Chief Legal Officer for PolyOnealso received perquisites in November 20012006, reflected in the table, with the following incremental costs: car allowance ($12,000) and was appointed Vice Presidentfinancial planning and Secretary in December 2001. tax preparation expenses ($2,200). |
|
| (13) | | Amounts under “All Other Compensation” for Ms. ShibaMr. Smith include taxgross-ups on personal benefits in the amount of $4,370, PolyOne’s cash contributions to PolyOne’sour qualified savings plan in the amount of $10,272 for 2003 and $4,250 for 2002 and amounts accrued$21,450, PolyOne’s cash contributions under PolyOne’sour non-qualified retirement plansplan providing for benefits in excess of the amounts permitted to be contributed under the qualified savings plan in the amount of $20,188 for 2003$14,255, excess liability umbrella insurance coverage in the amount of $987 and $7,750 for 2002.the current value of future estimated retiree medical coverage in the amount of $1,073. Mr. Smith also received perquisites in 2006, reflected in the table, with the following incremental costs: car allowance ($12,000) and financial planning and tax preparation expenses ($4,974). |
11
(7) |
| (14) | | Amounts under “All Other Compensation” for Mr. Rademacher includesBaert include PolyOne’s cash contributions to PolyOne’s qualifieda tax-efficient savings plan, generally provided to all Belgium employees, in the amount of $10,730 for 2003, $5,131 for 2002 and $2,188 for 2001 and amounts accrued under PolyOne’s non-qualified retirement plans providing for benefits$42,644. Mr. Baert also received perquisites in excess of the amounts permitted to be contributed under the qualified savings plan2006, reflected in the amount of $15,192 for 2003table, with the following incremental costs: company provided automobile ($20,951), meal vouchers ($1,320) and $4,375 for 2002. |
(8) | Amount under “Other Annual Compensation” for Mr. Rademacher in 2002 includes tax gross-ups on personal benefits in the amount of $11,572, carcustomer entertainment allowance in the amount of $12,000 and financial planning expenses in the amount of $10,755.($4,128). |
31
Option/SAR Grants in Last Fiscal Year
2006 GRANTS OF PLAN-BASED AWARDS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Estimated Future Payouts Under
| | | | | | | | | | | | |
| | | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(2) | | | Equity Incentive Plan Awards(4) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | All Other
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Stock
| | | | | | | | | Grant Date
|
| | | | | | | | | | | | | | | | | | | | | | | | | Awards:
| | | | | | | | | Fair
|
| | | | | | | | | | | | | | | | | | | | | | | | | Number
| | | | | | | | | Value of Stock
|
| | | | | | | | | | | | | | | | | | | | | | | | | of Shares
| | | Exercise or Base
| | | | | | and
|
| | | | | | | | | | | | | | | | | | | | | | | | | of Stock or
| | | Price of Option
| | | | | | Option/SAR
|
| | | | | | | Threshold(3)
| | | Target
| | | Maximum
| | | Threshold
| | | Target
| | | Maximum
| | | Units
| | | /SAR Awards(6)
| | | Closing Market
| | | Awards(7)
|
| Name | | | Grant Date | | | ($) | | | ($) | | | ($) | | | (#) | | | (#) | | | (#) | | | (#) | | | ($/Sh) | | | Price on Grant Date | | | ($) |
S.D. Newlin(1) | | | * | | | $ | 350,000 | | | | $ | 700,000 | | | | $ | 1,400,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2/21/06 | | | | 515,250 | | | | | 1,030,500 | | | | | 2,061,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2/21/06 | | | | 384,540 | | | | | 769,080 | | | | | 1,538,160 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2/21/06 | | | | | | | | | | | | | | | | | | | | | | | | 174,900 | | | | | | | | | | | | | | | 9.185 | | | | | 8.90 | | | | | 651,794 | |
| | | | 2/21/06 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 200,000(5 | ) | | | | | | | | | | | | | | 1,768,000 | |
| W.F. Patient | | | — | | | | — | | | | | — | | | | | — | | | | | — | | | | | — | | | | | — | | | | | 2,314 | | | | | — | | | | | — | | | | | 20,833 | |
| W.D. Wilson | | | * | | | | 88,515 | | | | | 177,029 | | | | | 354,058 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/4/06 | | | | 148,100 | | | | | 296,200 | | | | | 592,400 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/4/06 | | | | | | | | | | | | | | | | | | | | | | | | 63,000 | | | | | | | | | | | | | | | 6.51 | | | | | 6.56 | | | | | 173,880 | |
| W.C. Shiba | | | * | | | | 84,442 | | | | | 168,885 | | | | | 337,769 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/4/06 | | | | 113,000 | | | | | 226,000 | | | | | 452,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/4/06 | | | | | | | | | | | | | | | | | | | | | | | | 48,000 | | | | | | | | | | | | | | | 6.51 | | | | | 6.56 | | | | | 132,480 | |
| K.M. Smith | | | * | | | | 78,370 | | | | | 156,741 | | | | | 313,481 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/4/06 | | | | 104,850 | | | | | 209,700 | | | | | 419,400 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/4/06 | | | | | | | | | | | | | | | | | | | | | | | | 44,700 | | | | | | | | | | | | | | | 6.51 | | | | | 6.56 | | | | | 123,372 | |
| B.P. Baert | | | * | | | | 87,481 | | | | | 174,961 | | | | | 349,922 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/4/06 | | | | 87,750 | | | | | 175,500 | | | | | 351,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1/4/06 | | | | | | | | | | | | | | | | | | | | | | | | 37,500 | | | | | | | | | | | | | | | 6.51 | | | | | 6.56 | | | | | 103,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| * | | Individual Grants(1)
| | There is no Grant Date
Present Value ($ for these awards. This row relates to awards made under our cash-based Senior Executive Annual Incentive Plan (the “SEAIP”)(2)
. |
Name
| | Number of
Securities
Underlying
Options/SARs
Granted (# of
Shares)
| | % of Total
Options/SARs
Granted to
Employees in
Fiscal Year
| | Exercise or
Base
Price ($/Sh)
| | Expiration
Date
| | |
T. A. Waltermire
(1) | | 74,600
186,500
248,640 | | 2.66
6.66
8.87 | | 6.00
6.00
6.14 | | 4/01/07
4/01/13
12/11/06 | | 124,941
237,843
479,595Mr. Newlin was hired February 21, 2006. |
|
| (2) | | The first row of this column for each Named Executive Officer represents the annual cash incentive opportunity for the Named Executive Officers under the SEAIP. The actual amount earned for 2006 under the SEAIP is reported in the “Non-Equity Incentive Plan Compensation” column of the 2006 Summary Compensation Table. The second row of this column for each Named Executive Officer represents the performance units awarded to each Named Executive Officer under our 2005 Equity and Performance Incentive Plan. Each performance unit is equal in value to $1.00. These performance units will be paid in cash, if earned, and are subject to achievement of specified performance goals over a three-year performance period(2006-2008). The third row of this column for Mr. Newlin represents a two-year cash incentive that was granted to Mr. Newlin in connection with his employment agreement. This cash incentive consists of 87,000 targeted phantom units, with each unit being equal in value to one share of our common stock. These phantom units will be paid in cash (based on the high-low average of our common shares on the day immediately preceding approval of payment), if earned, and are subject to achievement of specified performance goals over a two-year performance period(2006-2007). |
|
| (3) | | Threshold refers to the minimum amount payable upon reaching the threshold level of performance. If threshold performance is not attained, the participant will receive $0 for this award. |
|
| (4) | | The numbers in this column represent stock-settled stock appreciation rights granted to the Named Executive Officers under our 2005 Equity and Performance Incentive Plan, which become exercisable only upon the achievement of target prices relating to our common stock. If the applicable target prices are met, a portion of the total award becomes exercisable, as explained in the following narrative disclosure. The award of SARs provides for a single estimated payout and, thus, the total number of stock-settled SARs granted in 2006 is reported in the “Target” column above. |
32
| | |
V. L. Mitchell
| | 25,500
63,700
84,960 | | .91
2.27
3.03 | | 6.00
6.00
6.14 | | 4/01/07
4/01/13
12/11/06 | | 42,708
81,237
163,877 |
| (5) | | | | | |
W. D. Wilson
| | 24,800
61,900
82,560 | | .88
2.21
2.95 | | 6.00
6.00
6.14 | | 4/01/07
4/01/13
12/11/06 | | 41,535
78,941
159,248 |
| | | | | |
W. C. Shiba
| | 18,800
46,900
62,500 | | .67
1.67
2.23 | | 6.00
6.00
6.14 | | 4/01/07
4/01/13
12/11/06 | | 31,486
59,812
120,555 |
| | | | | |
M. L. Rademacher
| | 15,600
39,100
52,080 | | 56
1.39
1.86 | | 6.00
6.00
6.14 | | 4/01/07
4/01/13
12/11/06 | | 26,127
49,864
100,456 |
(1) | Time-vested options and performance options were granted under PolyOne’s 1999 Incentive Stock Plan. Both the time-vested and performance options granted on April 1, 2003 have an above-market exercise priceThis represents a grant of $6.00 per share,restricted stock that Mr. Newlin received as part of his hiring package, which compares to PolyOne’s closing price of $3.90 on that date. The time-vested options will vest over a three-year period from the date of grant, with 35% of the shares vesting on the first anniversary, an additional 35% vesting on the second anniversary, and an additional 30% vestingfully vests on the third anniversary of the date of grant date. All performance options will vestand which accrues dividends, if any dividends are declared on April 1, 2006our common stock. |
|
| (6) | | In setting the base price of SARs, we have followed the practice of using the average of the high and must be exercised within one yearlow sales price of that date. Target-priced Stock Appreciation Rights (“SARs”) were granted under PolyOne’s 2000 Stockour common shares on the trading day immediately before the day the award was approved by the Committee. This practice is in compliance with our 2005 Equity and Performance Incentive Plan. The award of stock-settled SARs have a grant datethat was granted on January 4, 2006 to the Named Executive Officers other than Mr. Newlin was priced higher than the average of December 11, 2003the high and must be exercisedlow sales price on orthe trading day immediately before December 10, 2006. Vesting occurs when the price of PolyOne’s common stock reaches predetermined levels for three consecutive trading days as follows: one-third vests at $8 per share; an additional one-third vests at $9 per share; and the remaining one-third vests at $10 per share. |
(2) | The grant date present values of both the time-vested options and the performance options were estimated using the Black-Scholes option pricing model, with an option exercise price of $6.00, a closing price of PolyOne’s common stock on the date of grant of $3.90, a risk-free interest rate of 4.32%, and an assumed dividend yield of 2.59%. Stock price volatility is 42.0% for the time-vested options and 77.0% for the performance options. The grant date present values of the target-priced SARs were estimated using the Black-Scholes option pricing model with a($6.51 base price vs. $6.45 average of $6.14, a risk-free interest ratehigh and low on January 3, 2006). This base price is in compliance with the terms of 4.02%, an assumed dividend yield of 2.12%, stock price volatility of 75.9%,our 2005 Equity and exercise target prices of $8, $9 and $10 per share. |
| The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the use of highly subjective
|
12
| assumptions, including the expected stock price volatility. Because PolyOne’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimates, the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of PolyOne’s employee stock options. The amount realized from the exercise of an employee stock option ultimately depends on the market value of the common shares on the date of exercise.
|
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option/SAR Values
| | | | | | | | |
| | Shares Acquired
on Exercise
(# of Shares)
| | Value Realized
($)
| | Number of
Unexercised
Options/SARs
at FY-End
(# of Shares)
| | Value of
Unexercised
In-The-Money
Options/SARs
At FY-End
($)(1)
|
Name
| | | | Exercisable/
Unexercisable
| | Exercisable/
Unexercisable
|
T. A. Waltermire
| | –0– | | –0– | | 601,848/829,620 | | –0–/163,989 |
V. L. Mitchell
| | –0– | | –0– | | 239,361/277,635 | | –0–/56,028 |
W. D. Wilson
| | –0– | | –0– | | 236,346/270,450 | | –0–/54,453 |
W. C. Shiba
| | –0– | | –0– | | 27,993/180,225 | | –0–/41,248 |
M. L. Rademacher
| | –0– | | –0– | | 66,939/167,065 | | –0–/34,353 |
(1) | Based on the closing price of a common share of PolyOne of $6.39 as reported on the New York Stock Exchange on December 31, 2003. The ultimate realization of profit, if any, on the sale of common shares underlying the option is dependent upon the market price of the shares on the date of sale. |
Long-Term Incentive Plan Awards in Last Fiscal Year
| | | | | | | | | | |
| | | Value of Award
($)(1)
| | Performance
or Other Period Until Maturation or Payout(2)
| | Estimated Future Payouts Under Non-Stock Price-Based Plans
|
Name
| | | | Threshold
($)(3)
| | Target
($)(4)
| | Maximum
($)(5)
|
T. A Waltermire | | 745,900 | | 3/31/06 | | 372,950 | | 745,900 | | 1,491,800 |
V. L. Mitchell | | 254,900 | | 3/31/06 | | 127,450 | | 254,900 | | 509,800 |
W. D. Wilson | | 247,700 | | 3/31/06 | | 123,850 | | 247,700 | | 495,400 |
W. C. Shiba | | 187,500 | | 3/31/06 | | 93,750 | | 187,500 | | 375,000 |
M. L. Rademacher | | 156,300 | | 3/31/06 | | 78,150 | | 156,300 | | 312,600 |
(1) | Performance cash awards were granted under PolyOne’s Strategic Improvement Incentive Plan, (“SIIP”), entitling each named executive to a cash payment if PolyOne achieves a targeted level of cumulative operating income forwhich provides that the performance period of 2003-2005. The final amount of the award will be adjusted based on a comparison of PolyOne’s sales revenue growth to a peer group index. Prior to any payout, however, a targeted cumulative 2003-2005 earnings per sharebase price must be met. If PolyOne’s cumulative operating income for 2003-2005 is greater or less than the targeted level, but above the threshold level, cash payments will be made in accordance with a sliding scale. The value of the cash award payable to each named executive for achievement of the targeted level is based on the exercise price payable by each named executive to exercise performance options granted in 2003. For a complete description of the SIIP, which also includes time-vested and performance stock option awards, see “EXECUTIVE COMPENSATION — Long Term Incentives.” |
(2) | The performance period during which the performance business operating income will be measured for purposes of determining cash payouts is the three-year period commencing on January 1, 2003 and ending on December 31, 2005. Cash payouts, if any, will be paid by March 31, 2006. |
(3) | Refers to the amount payable if PolyOne’s cumulative operating income for 2003-2005 is less than the targeted level but above the threshold level. If the performance business operating income for 2003-2005 is less than the threshold level, no amount is payable under the plan. |
13
(4) | Refers to the amount payable if PolyOne’s cumulative operating income for 2003-2005 is equal to the targeted level. |
(5) | Refers to the amount payable if PolyOne’s cumulative operating income for 2003-2005 is equal to or greater than the fair market value of our common stock (which we have determined to be the average of the high and low sales price) on the day preceding the date of grant. |
|
| (7) | | This represents the grant date fair value of each equity-based award, computed in accordance with SFAS 123(R). |
Set forth below is narrative disclosure relating to the 2006 Summary Compensation Table and the 2006 Grants of Plan-Based Awards table.
Senior Executive Annual Incentive Plan
Annual cash incentives were granted in 2006 under our Senior Executive Annual Incentive Plan and are based on achievement of performance goals relating to company operating income, company-controlled cash flow and equity investment performance (for the corporate staff participants) and business unit operating income, company-controlled cash flow and revenue growth in Asia (for Mr. Baert). Achievement of a performance goal at the threshold level results in payment of 50% of the targeted award for that performance goal; achievement of a performance goal at the target level results in a payment of 100% of the targeted award for that performance goal; and, achievement at the maximum level or greater results in payment of 200% of the targeted award for that goal. In no event will a Named Executive Officer receive an award that exceeds the plan maximum of $2,000,000. If performance falls between the levels, the award payouts are interpolated. For a more detailed discussion of our annual incentive plan, see “Compensation Discussion and Analysis — Elements of Compensation — Annual Incentive.”
Cash-Settled Performance Units
Cash-settled performance units were granted in 2006 under our 2005 Equity and Performance Incentive Plan and are based on achievement of performance goals, over a three-year period, relating to return on invested capital, cash flow and our ratio of debt to EBITDA. If we achieve performance at the threshold levels, 50% of the performance units will be earned; if we achieve performance at the targeted levels, 100% of the performance units will be earned; and, if we achieve performance at the maximum levels or greater, 200% of the performance units will be earned. If performance falls between the levels, the number of performance units earned is interpolated for the ROIC and cash flow measures. There is no interpolation for the measure relating to the ratio of debt to EBITDA. Performance under each measure is evaluated independently and awards are determined separately for each measure. For a more detailed discussion of the performance units granted in 2006, see “Compensation Discussion and Analysis — Elements of Compensation — Cash-Settled Performance Units.”
33
Stock-Settled SARs
In 2006, our Compensation and Governance Committee granted stock-settled SARs to the Named Executive Officers. These SARs have a term of seven years and vest upon the attainment of target prices (sustained for three consecutive trading days) for PolyOne common shares as follows: 1/3 @ $7.50; 1/3 @ $8.50 and 1/3 @ $10.00. In no event may the SARs vest sooner than one year from the date of grant. For a more detailed discussion of the stock-settled SARs granted in 2006, see “Compensation Discussion and Analysis — Elements of Compensation — Stock-Settled SARs.”
Restricted Stock Granted to Mr. Newlin
Upon his hire date, Mr. Newlin received a grant of 200,000 shares of restricted stock, which fully vest on the third anniversary of the date of grant. The common shares subject to the grant of restricted stock may not be transferred or otherwise disposed of by Mr. Newlin (except by will or the laws of descent and distribution), unless the restricted stock becomes nonforfeitable as described herein. The common shares subject to the grant of restricted stock were registered in Mr. Newlin’s name and are fully paid and nonassessable. From and after the date of grant, Mr. Newlin had all of the rights of a shareholder with respect to the shares of restricted stock granted, including the right to vote such shares of restricted stock and receive any dividends that may be paid thereon.
Phantom Units Granted to Mr. Newlin
Mr. Newlin received a grant of 87,000 cash-settled phantom units, which become earned only upon the attainment of equally-weighted performance goals relating to our cash flow, return on invested capital (ROIC) and debt to EBITDA ratio and Mr. Newlin remaining in the continuous employ of PolyOne or a subsidiary through the end of a two year performance period (i.e., December 31, 2007). Each phantom unit is equal in value to one common share. If we achieve performance at the threshold levels, 50% of the units will be earned; if we achieve performance at the targeted levels, 100% of the units will be earned; and, if we achieve performance at the maximum levels or greater, 200% of the units will be earned. If performance falls between the levels, the number of units earned is interpolated for the ROIC and cash flow levels. There is no interpolation for the measure relating to the debt to EBITDA ratio. Performance under each measure is evaluated independently and awards are determined separately for each measure. Any earned units entitle Mr. Newlin to a cash payment at the end of the performance period equal to the number of earned units multiplied by the average of the high and low sales prices of our common shares on the day immediately preceding approval of payment.
Employment Agreements
We do not have employment agreements with any of our Named Executive Officers, except for Mr. Newlin. Mr. Newlin’s Employment Agreement is described in detail in the “Compensation Discussion and Analysis — Employment Agreement of the Chief Executive Officer” and the “Potential Payments Upon Termination orChange-in-Control” sections of this proxy statement.
34
2006 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Option/SAR Awards | | | | Stock Awards | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity
| | | | Equity
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Incentive
| | | | Incentive Plan
| |
| | | | | | | | | | | | Equity
| | | | | | | | | | | | | | | | | | | | Plan
| | | | Awards:
| |
| | | | | | | | | | | | Incentive Plan
| | | | | | | | | | | | | | | | | | | | Awards:
| | | | Market or
| |
| | | | | | | | | | | | Awards:
| | | | | | | | | | | | | | | | Market
| | | | Number of
| | | | Payout Value
| |
| | | | Number of
| | | | Number of
| | | | Number of
| | | | | | | | | | | | Number of
| | | | Value of
| | | | Unearned
| | | | of Unearned
| |
| | | | Securities
| | | | Securities
| | | | Securities
| | | | | | | | | | | | Shares or
| | | | Shares or
| | | | Shares,
| | | | Shares, Units
| |
| | | | Underlying
| | | | Underlying
| | | | Underlying
| | | | Option/
| | | | | | | | Units of
| | | | Units of
| | | | Units or
| | | | or Other
| |
| | | | Unexercised
| | | | Unexercised
| | | | Unexercised
| | | | SAR
| | | | Option/
| | | | Stock That
| | | | Stock That
| | | | Other Rights
| | | | Rights That
| |
| | | | Options/SARs
| | | | Options/SARs
| | | | Unearned
| | | | Exercise
| | | | SAR
| | | | Have Not
| | | | Have Not
| | | | That Have
| | | �� | Have Not
| |
| | | | (#)
| | | | (#)
| | | | Options/SARs
| | | | Price
| | | | Expiration
| | | | Vested
| | | | Vested
| | | | Not Vested
| | | | Vested(6)
| |
| Name | | | Exercisable(1) | | | | Unexercisable | | | | (#) | | | | ($) | | | | Date | | | | (#) | | | | ($) | | | | (#) | | | | ($) | |
| S.D. Newlin | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 200,000 | (2) | | | | 1,500,000 | (6) | | | | | | | | | | |
| | | | | | | | | | | | | | | 174,900 | (3) | | | | 9.1850 | | | | | 2/20/2013 | | | | | | | | | | | | | | | | | | | | | |
| W.F. Patient | | | | 72,000 | | | | | 0 | | | | | | | | | | 9.9375 | | | | | 1/1/2007 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 140,000 | | | | | 0 | | | | | | | | | | 10.3125 | | | | | 2/3/2008 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 6,000 | | | | | 0 | | | | | | | | | | 6.7050 | | | | | 5/20/2014 | | | | | | | | | | | | | | | | | | | | | |
| W.D. Wilson | | | | | | | | | | | | | | 26,400 | (4) | | | | 8.9400 | | | | | 1/4/2012 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 63,000 | (3) | | | | 6.5100 | | | | | 1/3/2013 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 23,800 | (5) | | | | 178,500 | |
| | | | | 8,000 | | | | | 0 | | | | | | | | | | 9.9375 | | | | | 1/1/2007 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 24,800 | | | | | 0 | | | | | | | | | | 6.0000 | | | | | 3/31/2007 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 128,536 | | | | | 0 | | | | | | | | | | 10.3125 | | | | | 2/3/2008 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 200 | | | | | 0 | | | | | | | | | | 9.0000 | | | | | 9/4/2010 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 71,100 | | | | | 0 | | | | | | | | | | 8.7000 | | | | | 2/27/2011 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 82,400 | | | | | 0 | | | | | | | | | | 12.2200 | | | | | 3/25/2012 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 61,900 | | | | | 0 | | | | | | | | | | 6.0000 | | | | | 3/31/2013 | | | | | | | | | | | | | | | | | | | | | |
| W.C. Shiba | | | | | | | | | | | | | | 20,700 | (4) | | | | 8.9400 | | | | | 1/4/2012 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 48,000 | (3) | | | | 6.5100 | | | | | 1/3/2013 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 18,600 | (5) | | | | 139,500 | |
| | | | | 2,134 | | | | | 0 | | | | | | | | | | 6.0000 | | | | | 3/31/2007 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 10,290 | | | | | 0 | | | | | | | | | | 8.9600 | | | | | 2/27/2011 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 59,400 | | | | | 0 | | | | | | | | | | 12.2200 | | | | | 3/25/2012 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 46,900 | | | | | 0 | | | | | | | | | | 6.0000 | | | | | 3/31/2013 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
35
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Option/SAR Awards | | | | Stock Awards | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity
| | | | Equity
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Incentive
| | | | Incentive Plan
| |
| | | | | | | | | | | | Equity
| | | | | | | | | | | | | | | | | | | | Plan
| | | | Awards:
| |
| | | | | | | | | | | | Incentive Plan
| | | | | | | | | | | | | | | | | | | | Awards:
| | | | Market or
| |
| | | | | | | | | | | | Awards:
| | | | | | | | | | | | | | | | Market
| | | | Number of
| | | | Payout Value
| |
| | | | Number of
| | | | Number of
| | | | Number of
| | | | | | | | | | | | Number of
| | | | Value of
| | | | Unearned
| | | | of Unearned
| |
| | | | Securities
| | | | Securities
| | | | Securities
| | | | | | | | | | | | Shares or
| | | | Shares or
| | | | Shares,
| | | | Shares, Units
| |
| | | | Underlying
| | | | Underlying
| | | | Underlying
| | | | Option/
| | | | | | | | Units of
| | | | Units of
| | | | Units or
| | | | or Other
| |
| | | | Unexercised
| | | | Unexercised
| | | | Unexercised
| | | | SAR
| | | | Option/
| | | | Stock That
| | | | Stock That
| | | | Other Rights
| | | | Rights That
| |
| | | | Options/SARs
| | | | Options/SARs
| | | | Unearned
| | | | Exercise
| | | | SAR
| | | | Have Not
| | | | Have Not
| | | | That Have
| | | | Have Not
| |
| | | | (#)
| | | | (#)
| | | | Options/SARs
| | | | Price
| | | | Expiration
| | | | Vested
| | | | Vested
| | | | Not Vested
| | | | Vested(6)
| |
| Name | | | Exercisable(1) | | | | Unexercisable | | | | (#) | | | | ($) | | | | Date | | | | (#) | | | | ($) | | | | (#) | | | | ($) | |
| K.M. Smith | | | | | | | | | | | | | | 18,600 | (4) | | | | 8.9400 | | | | | 1/4/2012 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 44,700 | (3) | | | | 6.5100 | | | | | 1/3/2013 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 16,667 | (5) | | | | 125,003 | |
| | | | | 1,800 | | | | | 0 | | | | | | | | | | 9.9375 | | | | | 1/1/2007 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 29,392 | | | | | 0 | | | | | | | | | | 10.3125 | | | | | 2/3/2008 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 200 | | | | | 0 | | | | | | | | | | 9.0000 | | | | | 9/4/2010 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 42,700 | | | | | 0 | | | | | | | | | | 8.7000 | | | | | 2/27/2011 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 49,500 | | | | | 0 | | | | | | | | | | 12.2200 | | | | | 3/25/2012 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 39,100 | | | | | 0 | | | | | | | | | | 6.0000 | | | | | 3/31/2013 | | | | | | | | | | | | | | | | | | | | | |
| B.P. Baert | | | | | | | | | | | | | | 18,600 | (4) | | | | 8.9400 | | | | | 1/4/2012 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 37,500 | (3) | | | | 6.5100 | | | | | 1/3/2013 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 16,733 | (5) | | | | 125,498 | |
| | | | | 3,030 | | | | | 0 | | | | | | | | | | 25.1875 | | | | | 11/4/2007 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 7,073 | | | | | 0 | | | | | | | | | | 15.0000 | | | | | 11/3/2008 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 6,969 | | | | | 0 | | | | | | | | | | 10.6250 | | | | | 11/30/2009 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 200 | | | | | 0 | | | | | | | | | | 9.0000 | | | | | 9/4//2010 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 41,000 | | | | | 0 | | | | | | | | | | 8.7000 | | | | | 2/27/2011 | | | | | | | | | | | | | | | | | | | | | |
| | | | | 47,500 | | | | | 0 | | | | | | | | | | 12.2200 | | | | | 3/25/2012 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | This column shows the fully-exercisable stock options granted to the Named Executive Officers prior to the last fiscal year. |
|
| (2) | | These shares of restricted stock vest on the third anniversary of the date of grant. |
|
| (3) | | These stock-settled stock appreciation rights (“SARs”) were granted in 2006 and vest upon the attainment of target prices (sustained for three consecutive trading days) for our common shares as follows: 1/3 @ $7.50; 1/3 @ $8.50; and 1/3 @ $10.00. In no event may the SARs vest sooner than one year from the date of grant. |
|
| (4) | | These stock-settled SARs were granted in 2005 and vest upon the attainment of target prices (sustained for three consecutive trading days) for our common shares as follows: 1/3 @ $9.84; 1/3 @ $10.73; and 1/3 @ $11.63. |
|
| (5) | | These performance shares were granted in January 2005 and are earned upon achievement of performance goals, over the2005-2007 performance period, relating to operating cash flow, return on invested capital (ROIC), and level of EBITDA in relation to debt. Each performance measure is weighted equally at 331/3%. If we were to attain all of the targeted performance levels, a participant would earn a target-level award. If we were to attain only the threshold performance levels, 50% of the targeted award would be earned and if we were to attain the maximum level.or better performance levels, the participant would earn |
36
Retirement Pensions
The following table shows the total estimated annual pension benefits payable to certain
| | |
| | 200% of the targeted award. Awards are interpolated for the ROIC and cash flow measures if performance falls between the levels. There is no interpolation for the level of EBITDA in relation to debt performance measure. The numbers reflected in the table are based on achieving the threshold level of performance for two performance measures and the target level of performance for one performance measure. |
|
| (6) | | Based on the closing market price of our common shares on the last trading day of the 2006 fiscal year, December 29, 2006 ($7.50). |
2006 OPTION EXERCISES AND STOCK VESTED
| | | | | | | | | | | | | | | | | | | | | |
| | | | Option/SAR Awards | | | | Stock Awards | |
| | | | Number of Shares
| | | | | | | | Number of Shares
| | | | | |
| | | | Acquired on
| | | | Value Realized
| | | | Acquired on
| | | | Value Realized
| |
| | | | Exercise(1)
| | | | on Exercise(2)
| | | | Vesting
| | | | on Vesting
| |
| Name | | | (#) | | | | ($) | | | | (#) | | | | ($) | |
| S.D. Newlin | | | | — | | | | | — | | | | | — | | | | | — | |
| W.F. Patient | | | | — | | | | | — | | | | | — | | | | | — | |
| W.D. Wilson | | | | 55,040 | | | | | 154,387 | | | | | — | | | | | — | |
| W.C. Shiba | | | | 16,666 | | | | | 31,332 | | | | | — | | | | | — | |
| K.M. Smith | | | | 15,600 | | | | | 50,382 | | | | | — | | | | | — | |
| B.P. Baert | | | | 16,400 | | | | | 48,380 | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | Mr. Wilson exercised 55,040 stock appreciation rights; Ms. Shiba exercised 16,666 incentive stock options; Mr. Smith exercised 15,600 incentive stock options; Mr. Baert exercised 16,400 stock appreciation rights. |
|
| (2) | | Represents the difference between the market price of our common shares at exercise and the exercise or base price of the options or SARs exercised. |
37
2006 PENSION BENEFITS
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Present Value of
| | | | | |
| | | | | | | Number of Years
| | | | Accumulated
| | | | Payments During
| |
| | | | | | | Credited Service
| | | | Benefit(1)
| | | | Last Fiscal Year
| |
| Name | | | Plan Name | | | (#) | | | | ($) | | | | ($) | |
| S.D. Newlin | | | N/A | | | | — | | | | | — | | | | | — | |
W.F. Patient(2) | | | N/A | | | | — | | | | | — | | | | | — | |
| W.D. Wilson | | | PolyOne Merged Pension Plan | | | | 24.9 | | | | | 512,950 | | | | | 0 | |
| | | | The Geon Company Section 401(a)(17) Benefit Restoration Plan | | | | 24.9 | | | | | 582,220 | | | | | 0 | |
| W.C. Shiba | | | N/A | | | | — | | | | | — | | | | | — | |
| K.M. Smith | | | PolyOne Merged Pension Plan(3) | | | | 17.4 | | | | | 326,264 | | | | | 0 | |
| | | | The Geon Company Section 401(a)(17) Benefit Restoration Plan(4) | | | | 17.4 | | | | | 173,694 | | | | | 0 | |
| B.P. Baert | | | N/A | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | The Present Value of Accumulated Benefit shown in column (d) above for each plan for each Named Executive Officer is the lump-sum value as of December 31, 2006 of the monthly pension benefit earned as of December 31, 2006 that would be payable under that plan for the executive’s life beginning on age 62 (the earliest age prior to the Normal Retirement Age of 65 when benefits can commence unreduced for early retirement). Lump sum payments are not allowed under either plan. The assumptions used to determine the lump-sum value are a discount rate of 6.07% and a post-retirement mortality using the RP-2000 Combined Healthy Mortality Tables for males. No pre-retirement decrements are assumed. |
|
| (2) | | Mr. Patient was not entitled to pension benefits as a result of his retirement as our Chairman, President and Chief Executive Officer. Prior to his serving in this capacity, he was entitled to, and was receiving, earned pension benefits as a result of his service with The Geon Company, our predecessor. |
|
| (3) | | Mr. Smith’s Number of Years of Credited Service includes the 4 additional years of pension service discussed in the narrative following the 2006 Pension Benefits table. Without the 4 additional years of pension service, the Present Value of Accumulated Benefit would have been $251,355 instead of the $326,264 shown in the table. |
|
| (4) | | Mr. Smith’s Number of Years of Credited Service includes the 4 additional years of pension service discussed in the narrative following the 2006 Pension Benefits table. Without the 4 additional years of pension service, the Present Value of Accumulated Benefit would have been $133,814 instead of the $173,694 shown in the table. |
As a result of the executives named in the Summary Compensation Table. These executives are eligible to receive pension payments undercontinuation of a plan that existed prior to the consolidation of Geon and M.A. Hanna, (the “Plan”we maintain two defined benefit plans for those employees who were with those companies at the time of the consolidation. As of December 31, 1999, both plans were closed to new participants.
One plan is The PolyOne Merged Pension Plan, which provides funded, tax-qualified benefits subject to the limits on compensation and benefits under the Internal Revenue Code (referred to as
38
the “Qualified Plan”). The other plan is The Geon Company Section 401(a)(17) Benefit Restoration Plan, which provides unfunded, non-qualified benefits that are in addition to those offered under the Qualified Plan. The Benefit Restoration Plan benefits are calculated under a formula similar to that of the Qualified Plan, but without the compensation and benefit limits imposed by the Internal Revenue Code on qualified plans. The benefits under the Benefit Restoration Plan are offset by benefits provided under the Qualified Plan. The Qualified Plan makes available a pension that is paid from funds in trust provided through contributions by PolyOne and contributions byPolyOne. Any pension benefit provided under the executive, if any, made prior to 1972. Benefit Restoration Plan is paid from our general assets.
The amount of the executive’s pension depends on a number of factors including
Final Average Earnings“final average earnings” (“FAE”) and years of credited company service to PolyOne.
Effective January 1, 2003, no additional service will be credited under the Plan, although future earnings will continue to be factored into the computation of FAE.The table shows the annual pension amounts currently availableFAE is determined based on the combinations of FAE andhighest four consecutive calendar years of creditedan employee’s earnings. Earnings include salary, overtime pay, holiday pay, vacation pay, and certain incentive payments including annual cash bonuses, but exclude awards under long-term incentive programs and the match by us in the qualified savings plans. The annual salary and bonus for the current year for the Named Executive Officers is indicated in the 2006 Summary Compensation Table.
Effective December 31, 2002, service shownunder the both the Qualified Plan and should be read in conjunction with the accompanying notes. As of January 1, 1989,Benefit Restoration Plan were frozen. Effective December 31, 2004, earnings under the Benefit Restoration Plan were frozen.
The combined Plans generally providesprovide a benefit of 1.15% of FAE, times all years of pension service credit, plus 0.45% of FAE in excess of “covered compensation” (as defined by the Social Security Administration) times years of pension credit up to 35 years. In addition, those executives who were actively at work on December 31, 1989, may receive an additional pension service credit of up to 4 years (up to a maximum ofif actual pension service credit is less than 24 years) of pension credit.years. Benefits become vested after 5 years of service. Asservice and are generally payable on a monthly lifetime basis starting at age 65.
A former employee can elect to commence vested benefit payments as early as age 55 in lieu of January 1, 2000,waiting to age 65. However, the Plan was closedbenefit described above is subject to new participants.reduction in recognition of the additional payments that are received because of early commencement. The tablereduction for early retirement is determined differently depending on whether the former employee terminated employment before or after attaining age 55. If an employee terminates employment on or after age 55 and discussioncommences his or her benefit before age 62, the benefit payments would be reduced by 0.5% per month. If an employee terminates employment before age 55 and commences his or her benefit before age 65, the reduction is more severe and is determined on an actuarially equivalent basis. No reduction will occur if an employee (1) terminates employment on or after age 55 and commences his or her benefit on or after age 62 or (2) terminates employment before age 55 and commences his or her benefit at age 65.
The normal form of
retirement benefits apply as of December 31, 2003.Pension Plan Table
| | | | | | | | | | |
Final Average Earnings ($)
| | Years Of Credited Service(1)
|
| | 10(2)
| | 15(2)
| | 20(2)
| | 25
| | 30
|
| 400,000 | | 87,115 | | 118,228 | | 149,340 | | 155,563 | | 186,675 |
| 500,000 | | 109,515 | | 148,628 | | 187,740 | | 195,563 | | 234,675 |
| 600,000 | | 131,915 | | 179,028 | | 226,140 | | 235,563 | | 282,675 |
| 700,000 | | 154,315 | | 209,428 | | 264,540 | | 275,563 | | 330,675 |
| 800,000 | | 176,715 | | 239,828 | | 302,940 | | 315,563 | | 378,675 |
| 900,000 | | 199,115 | | 270,228 | | 341,340 | | 355,563 | | 426,675 |
| 1,000,000 | | 221,515 | | 300,628 | | 379,740 | | 395,563 | | 474,675 |
| 1,100,000 | | 243,915 | | 331,028 | | 418,140 | | 435,563 | | 522,675 |
| 1,200,000 | | 266,315 | | 361,428 | | 456,540 | | 475,563 | | 570,675 |
(1) | As of December 31, 2003, the following executives had the following years of credited service under the Plan or subsidiary plans or supplemental agreements: T.A. Waltermire, 28 years, 6 months; V.L. Mitchell, 13 years, 7 months; and W.D. Wilson, 24 years, 11 months. Ms. Shiba and Mr. Rademacher do not participate in a pension plan. |
(2) | Includes an additional 4 years of service applicable to pre-January 1, 1990 employees. |
The Plan uses either a “final average earnings” formula or a “service credit” formula to compute the amount of an employee’s pension, applying the formula which produces the higher amount. The table was prepared using the FAE formula, since the service credit formula would produce lower amounts than those shown. Under the FAE formula, a pension is based on the highest four consecutive calendar years of an employee’s earnings. Earnings include salary, overtime pay, holiday pay, vacation pay, and certain incentive payments including annual cash bonuses, but exclude awards under long-term incentive programs and the match by PolyOne in the savings plans. As of December 31, 2003, final average earnings for the following individuals were as follows: T.A. Waltermire — $981,771; V.L. Mitchell — $427,046; and W.D. Wilson — $422,782.
14
In computing the pension amounts shown, it was assumedpayment provides that an employee would retire at age 65will receive his or her benefit on a lifetime payment with a minimum of 60 monthly payments guaranteed. Married participants receive payments in an actuarially equivalent 50% Joint and electSurvivor form. Other actuarially equivalent monthly lifetime forms of payments are available if elected by the participant with spousal agreement if married. Lump sum payments are not available.
In general, if a married, vested participant dies prior to commencing his pension benefit then the spouse is eligible to receive the benefit that would have otherwise been payable had the participant terminated employment on the day he died, survived to his Normal Retirement Date and elected a five-year certain50% Joint and continuous annuity underSurvivor form of payment and then immediately died. The 50% Joint and Survivor provides the Plan and thatsurviving spouse with monthly lifetime payments at the employee would not elect anyparticipant’s Normal Retirement Age equal to 50% of the available “survivor options,” whichbenefit that otherwise would resulthave been payable. Payments can
39
commence prior to the participant’s Normal Retirement Age but may be reduced for early commencement.
2006 NONQUALIFIED DEFERRED COMPENSATION
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Executive
| | | | Registrant
| | | | Aggregate
| | | | Aggregate
| | | | Aggregate
| |
| | | | Contributions in
| | | | Contributions in
| | | | Earnings
| | | | Withdrawals/
| | | | Balance at Last
| |
| | | | Last FY(1)
| | | | Last FY(2)
| | | | in Last FY(3)
| | | | Distributions
| | | | FYE(4)
| |
| Name | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | |
| S.D. Newlin | | | $ | 20,377 | | | | $ | 22,675 | | | | $ | 413 | | | | | — | | | | $ | 40,100 | |
| W.F. Patient | | | | — | | | | | — | | | | | — | | | | | — | | | | | — | |
| W.D. Wilson | | | | 49,442 | | | | | 27,410 | | | | | 49,814 | | | | | — | | | | | 502,595 | |
| W.C. Shiba | | | | 9,633 | | | | | 11,036 | | | | | 16,409 | | | | | — | | | | | 190,406 | |
| K. M. Smith | | | | 7,803 | | | | | 14,255 | | | | | 11,388 | | | | | — | | | | | 151,941 | |
| B.P. Baert | | | | — | | | | | — | | | | | — | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | These amounts reflect actual amounts earned by the executives in 2006, which amounts have been deferred on a voluntary basis. The full amounts reflected in column (b) are included in the 2006 Summary Compensation Table as Salary, except for $4,364 relating to Mr. Wilson, which was reported in the “Bonus” column of the 2005 Summary Compensation Table. |
|
| (2) | | This column contains contributions by us in the last fiscal year under our non-qualified retirement plan, the PolyOne Supplemental Retirement Benefit Plan, which provides for benefits in excess of amounts permitted to be contributed under our qualified retirement plan, as follows: (a) our cash contributions in amounts equal to 100% on the first 3% of employee contributions plus 50% on the next 3% of employee contributions (the “Company Match”); (b) a retirement contribution by us in an amount equal to 2% of eligible earnings (the “Retirement Contribution”); and (c) for Messrs. Smith and Wilson only (as our heritage employees), an additional automatic company-paid contribution in the amount of 3.25% and 4%, respectively (the “Transition Contribution”). Messrs. Baert and Patient do not currently participate in this plan or any other non-qualified deferred compensation plan. The following table breaks out the contributions made by us in 2006 under each of the types of contributions described above: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Company Contribution | | Newlin | | | Patient | | | Wilson | | | Shiba | | | Smith | | | Baert | |
| |
| Company Match | | $ | 15,283 | | | | — | | | $ | 14,833 | | | $ | 7,225 | | | $ | 5,852 | | | | — | |
| Retirement Contribution | | | 7,392 | | | | — | | | | 4,192 | | | | 3,811 | | | | 3,201 | | | | — | |
| Transition Contribution | | | 0 | | | | — | | | | 8,385 | | | | 0 | | | | 5,202 | | | | — | |
| | |
| | All of these amounts are included in the “All Other Compensation” column of the 2006 Summary Compensation Table. |
|
| (3) | | Because amounts included in this column do not include above-market or preferential earnings, none of these amounts are included in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the 2006 Summary Compensation Table. |
|
| (4) | | A portion of the balance reflected in the table represents amounts earned by the executives, which they have elected to defer on a voluntary basis. The following amounts included in the “Aggregate Balance at Last FYE” column were reported in the 2006 Summary Compensation Table or in the Summary Compensation Table for previous years since our formation in 2000 (in the “Salary,” “Bonus,” “Non-Equity Incentive Plan Compensation,” or the “All Other Compensation” columns): Mr. Newlin: $40,100; Mr. Wilson: $345,830; Ms. Shiba: $152,938; and Mr. Smith: $102,121. Certain of the Named Executive Officers also have balances in frozen non-qualified deferred compensation plans sponsored by our predecessor companies, Geon and M.A. Hanna. These plans are The Geon Company Section 401(a)(17) Benefit Restoration Plan and the M.A. Hanna Company Supplemental Retirement Benefit Plan. These amounts are reflected in the table. |
We currently offer participation in a
lower annual pension. If an employee elects to retire between the ages of 55 and 64, the employee would receive a reduced pension amount. The reduced amount is determined based on factors such as age at retirement and years of service. Pensions are not subject to any reduction for Social Security or any other offset amount. Benefits shown in the table that exceed the level of benefits permitted to be paid from a tax-qualified pension plan under the Internal Revenue Code, and certain additional benefits not payable under the qualified pension plan because of certain exclusions from compensation taken into account thereunder, are payable under an unfunded, non-qualified
benefits restoration pension plan.Share Ownership Guidelines
PolyOne has established share ownership guidelines for non-employee Directors, executive officers and other senior executives to better align their financial interests with those of shareholders by requiring them to own a minimum level of PolyOne shares. These individuals are expected to make continuing progress towards compliance with the guidelines and to comply fully within five years of becoming subject to the guidelines.
The share ownership requirements depend on a person’s level of employment. The Chief Executive Officer is required to own 300,000 shares. Executive officers are required to own that number of shares equal to three times their individual salary divided by a benchmark price for PolyOne shares, which results in a range of required ownership of 45,000 to 85,000 shares. Other executives are required to own either 25,000 or 10,000 shares, depending on their job levels. For individuals nearing retirement, the applicable guidelines are reduced after age 55 by 10% each year for five years. The required share ownership level for non-employee Directors is 10,000 shares.
In general, shares counted towards required ownership include shares directly held and shares vested in PolyOne’s benefit or deferral plans. Share ownership guidelines will be reviewed if significant movements in PolyOne’s share price occur, or at least every three years to evaluate the adequacy of the required holdings based on the value of required holdings.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that PolyOne’s executive officers and Directors, and persons who own more than 10% of a registered class of PolyOne’s equity securities, file reports of ownership and changes in ownership with the Commission. Executive officers, Directors and greater than 10% shareholders are required by Commission rules to furnish PolyOne with copies of all forms they file. Based solely on its review of the copies of such forms received by us and written representations from certain reporting persons, we believe that, during 2003, all Section 16(a) filing requirements applicable to its executive officers, Directors and 10% shareholders were satisfied, with the following exceptions. On April 1, 2003, PolyOne issued shares directly to Mr. Garda and also into his Director Deferred Compensation Plan account. Mr. Garda timely filed a Form 4 to report the issuance of shares into his deferred compensation retirement plan, account. Mr. Garda filed an amended Form 4 on June 19, 2003 to report the shares issued to him directly. On December 11, 2003, PolyOne granted SARs to Mr. Rosenau, who timely filed a Form 4 on December 15, 2003 to report that transaction. Mr. Rosenau filed an amended Form 4 on December 23, 2003 to correct a calculation in the amount of SARs he was granted. Ms. Cartwright filed an amended Form 4 on March 4, 2004 to report shares owned by her spouse that had not previously been reported on her Forms 4. On January 14, 2004, Mr. Meier timely filed a Form 3 to report his initial beneficial ownership. Mr. Meier filed an amended Form 3 on February 27, 2004 to report his holdings incalled the PolyOne Supplemental Retirement Benefit Plan. This plan is an unfunded, nonqualified
40
plan that provides benefits similar to our Qualified Savings Plan, but without Internal Revenue Code contribution and earnings limitations. The Named Executive Officers are permitted to elect to defer up to 15% of their salary and annual bonus into the plan. The amounts deferred are credited to accounts selected by the executive that mirror the investment alternatives available in our qualified retirement plan, except that participants cannot elect the PolyOne stock fund with respect to amounts deferred under the non-qualified plan. Each Named Executive Officer who is a participant in the supplemental plan is 100% vested in that portion of his or her account that is attributable to elective deferrals, the Transition Contribution (as defined above) and the Company Match (as defined above). Further, Named Executive Officers who are participants in the plan are vested in the Retirement Contribution (as defined above) upon three years of service. A Named Executive Officer’s vested accounts will commence to be paid to such executive within 30 days of the date of the executive’s termination of employment with us in the form of payment selected by the executive (lump sum payment or payment in installments over a period not exceeding 10 years) on an election form received by us.
The PolyOne Supplemental Retirement Benefit Plan and the frozen legacy plans are subject to the rules of Section 409A of the Internal Revenue Code, which
had been omittedrestricts the timing of distributions. Thus, payment, or commencement of payment, to the Named Executive Officers of their accounts may need to be delayed by six months from
his original filing.such executive’s “separation from service” with us.
POTENTIAL PAYMENTS UPON TERMINATION ORCHANGE-IN-CONTROL
Our Named Executive Officers’ employment may be terminated under several possible scenarios. In certain of these scenarios, our plans, agreements, arrangements or typical practices would provide severance benefits in varying amounts to the executive. We do not have employment agreements with any of our Named Executive Officers, other than Mr. Newlin. We do have Management Continuity Agreements with each of our Named Executive Officers, which provide for specified benefits upon a termination of employment following a change in control and each of our Named Executive Officers, other than Mr. Newlin, participate in our newly-approved Executive Severance Plan. Further, our plans, agreements and arrangements may provide for specified benefits upon a change in control (or for acceleration of such benefits). Severance and other benefits that are payable upon a termination of employmentand/or upon a change in control are described below. The tables following the narrative discussion summarize the amounts payable upon termination or a change in control under certain circumstances, assuming that the executive’s employment terminated on December 31, 2006.
Management Continuity Agreements Messrs.
Waltermire, Mitchell,Newlin, Wilson,
and RademacherSmith, Baert and Ms. Shiba are parties to management continuity agreements with
PolyOneus (the “Continuity Agreements”). The purpose of the Continuity Agreements is to
15
encourage the individuals to carry out their duties in the event of the possibility of a “change of control” of PolyOne. The Continuity Agreements do not provide any assurance of continued employment unless there is a change of control. The Continuity Agreements generally provide for a two-year period of employment commencing upon a change of control. Generally, a change of control is deemed to have occurred if:
| | |
| • | any person becomes the beneficial owner of 25% or more of the combined voting power of our outstanding securities (subject to certain exceptions); |
|
| • | there is a change in the majority of our Board of Directors; |
41
any person becomes the beneficial owner of 25% or more of the combined voting power of PolyOne’s outstanding securities (subject to certain exceptions);
there is a change in the majority of the Board of Directors of PolyOne;
certain corporate reorganizations occur where the existing shareholders do not retain more than 60% of the common shares and combined voting power of the outstanding voting securities of the surviving entity; or
there is shareholder approval of a complete liquidation or dissolution of PolyOne.
| | |
| • | certain corporate reorganizations occur where the existing shareholders do not retain more than 60% of the common shares and combined voting power of the outstanding voting securities of the surviving entity; or |
|
| • | there is shareholder approval of a complete liquidation or dissolution of PolyOne. |
The Continuity Agreements generally provide for the continuation of employment of the individuals (for a period of 2 or 3 years, depending on the executive) in the same positions and with the same responsibilities and authorities that they possessed immediately prior to the change of control and with the same benefits and level of compensation.
If a change of control occurs and the individual’sNamed Executive Officer’s employment is terminated by PolyOneus or a successor for reasons other than “cause” or is terminated voluntarily by the individual for “good reason” (in each case as defined in, generally the Continuity Agreements), generallyAgreements provide that the individual would be entitled to receive:
| | |
| • | at the election of the executive, continued payments of base salary for a period of up to two or three years, depending on the executive, or a lump sum payment of two or three years of base salary, depending on the executive; |
|
| • | a payment of up to two or three times (depending on the executive) the executive’s targeted annual incentive amount in effect prior to the change of control; |
|
| • | the continuation of all employee health and welfare benefits for up to two or three years (depending on the executive); |
|
| • | financial planning services for one year; |
|
| • | a payment based on the difference between what the executive is entitled to receive under certain retirement plans and what the executive would have received under such retirement plans if he or she had accumulated two or three (depending on the executive) additional years of service under such plans; |
|
| • | a lump sum payment equal to the company contributions required to be made to certain retirement plans on behalf of the executive for the year of the change of control or the year of termination; and |
|
| • | a taxgross-up for any excise tax due under the Internal Revenue Code for any payments or distributions made under the agreements. |
All of the above severance benefits would be paid to the executive in accordance with, and at times permitted by, Section 409A of the Internal Revenue Code.
Under the terms of the Continuity Agreements, “cause” is defined generally to include: (1) following notice and an opportunity to cure, the willful and continued failure of the executive to substantially perform his or duties, which causes material and demonstrable injury to the company; or (2) the willful engaging by the executive in other gross misconduct materially and demonstrably injurious to the company.
Further, under the terms of the Continuity Agreements, “good reason” is defined generally to include:
| | |
| • | changes in duties, responsibilities, reporting relationships and status that constitute a material demotion; |
42
compensation | | |
| • | the assignment of duties or responsibilities that are materially inconsistent with, or materially and adversely change, the executive’s positions, duties, responsibilities or reporting relationships and status; |
|
| • | a reduction in base salary or target incentive; |
|
| • | the failure to continue employee benefits or perquisites on a substantially equivalent basis; |
|
| • | the requirement to change the principal location of the executive’s work, which results in an additional commute of more than 50 miles; |
|
| • | the requirement for increased travel (one-third more) away from the executive’s office; |
|
| • | the failure of a successor to assume the Continuity Agreement; or |
|
| • | a termination of employment that does not comply with the Continuity Agreement. |
For the Chief Executive Officer, Chief Financial Officer and Chief Legal Officer, “good reason” also includes their election to terminate employment for any reason during the30-day period immediately following the first anniversary of the change of control.
To the extent a payment or benefit that is paid or provided under a Continuity Agreement would also be paid or provided under the terms of another plan, program, agreement or arrangement, such applicable plan, program, agreement or arrangement shall be deemed to have been satisfied by the payment made or benefit provided under the Continuity Agreement.
In addition, in order to receive payment and benefits under the Continuity Agreement, the Named Executive Officer must execute a release of claims against us and is subject to confidentiality, non-compete and non-solicitation covenants for two or three years (depending on the executive).
Employment Agreement with Mr. Newlin
We have entered into a letter agreement with Stephen D. Newlin, pursuant to which Mr. Newlin agreed to serve as our Chairman, President and Chief Executive Officer. The agreement provides that if (i) Mr. Newlin’s employment is terminated by us without serious cause (as defined in our Employee Transition Plan), (ii) Mr. Newlin is not otherwise entitled to receive benefits under his Continuity Agreement (discussed above) and (iii) Mr. Newlin agrees to standard non-compete and non-solicitation covenants for a period of up36 months following the date of termination, Mr. Newlin will be entitled to three years, commencing at36 months of salary continuation, car allowance and financial planning/tax preparation allowance, a pro-rated annual incentive amount as earned for the individual’syear in which the termination of employment occurs and 18 months of continuation in our medical and dental plans (but not life insurance, short-term disability or long-term disability) and an amount equal to the financial equivalent of six additional months of continuation in such medical and dental plans.
If Mr. Newlin’s employment is involuntarily terminated without serious cause prior to February 21, 2009, Mr. Newlin is entitled to an additional cash payment, which payment increases each year during the three-year period. If Mr. Newlin is terminated on or following February 21, 2009, there is no additional cash payment.
Executive Severance Plan
On May 25, 2006, our Compensation and Governance Committee approved the adoption of the PolyOne Corporation Executive Severance Plan (the “Severance Plan”). The Severance Plan provides for severance payments to our executive officers and other elected officers upon certain terminations of employment.
43
For the Named Executive Officers other than Mr. Newlin, the Severance Plan provides that, if we terminate the employment of a Named Executive Officer for any reason other than cause, the Named Executive Officer will be entitled to receive:
| | |
| • | salary continuation payments in an amount equal to two times the Named Executive Officer’s base salary; |
|
| • | a pro rata payment of his or her annual bonus for the year of termination; |
|
| • | continued participation in our medical, dental and vision plans for two years; and |
|
| • | fees for outplacement benefits for a period of 12 months. |
We do not have to make payments to any Named Executive Officer under the Severance Plan if he or she is entitled to receive payment under a Continuity Agreement discussed above. In addition, in order to receive payment and benefits under the Severance Plan, the Named Executive Officer must execute a release of claims against us and is subject to confidentiality, non-compete, non-solicitation and non-disparagement covenants during the two-year severance period.
Senior Executive Annual Incentive Plan
The PolyOne Senior Executive Annual Incentive Plan (the “SEAIP”) provides opportunities to our key executives to receive incentive compensation as a reward for high levels of performance above the ordinary performance standards compensated by base salary, ratewithout limiting our ability to deduct that expenditure for federal income tax purposes. Currently, all of our Named Executive Officers participate in effect at the timeSEAIP. The SEAIP provides that, if a change in control occurs, we are required to pay each participant an interim lump-sum cash payment equal to the product of the termination;
a paymentnumber of upmonths that have elapsed in the calendar year prior to three times the “targetchange in control and one-twelfth of the participant’s target annual incentive amount” (as defined in the Continuity Agreements)award in effect prior to the change in control;
control. We have the continuation of all employee health and welfare benefits for upobligation to three years;
financial planning services for one year;
make a final payment based on the incremental cash value of counting for purposes of certain retirement plans up to three additional years of covered compensation; and
a tax gross-up for any excise tax due under the Internal Revenue Codeterms of the SEAIP for the plan year in which the change in control occurs, but may offset the amount of any interim payment made.
Under the SEAIP, a change in control is deemed to have occurred if:
| | |
| • | any person becomes the beneficial owner of 20% or more of the combined voting power of our outstanding securities (subject to certain exceptions); |
|
| • | there is a change in the majority of our Board of Directors; |
|
| • | certain corporate reorganizations occur where the existing shareholders do not retain more than 60% of the common shares and combined voting power of the outstanding voting securities of the surviving entity; or |
|
| • | there is shareholder approval of a complete liquidation or dissolution of PolyOne. |
Equity/Long-Term Incentive Awards
Each of the agreements evidencing outstanding awards of restricted stock, stock options, stock appreciation rights, performance shares and performance units provides that the vesting of such award will accelerate upon a change in control. For this purpose a “change in control” is defined, in some instances, the same as in the SEAIP and, in other instances, the same as in the Continuity Agreements.
44
Retirement Benefits
Our defined benefit retirement benefit plan, applicable only to Messrs. Smith and Wilson also has provisions relating to the termination of the participants’ employment with us. These payments are described more fully in the disclosure provided in connection with the 2006 Pension Benefits table contained in this proxy statement.
Mr. Patient — Termination Payments
Mr. Patient retired as our Chairman, President and Chief Executive Officer on February 21, 2006. He continued to serve as a member of our Board of Directors until he retired from that position on May 25, 2006. Mr. Patient did not receive any payments or distributions made under the agreements.
If the individual’s employment is terminated by PolyOne or a successor for “cause” or is terminated voluntarily by the individual for reasons other than for “good reason,” the individual is not entitled to the benefits set forth above and is entitled to compensation earned through the date offrom us specifically in connection with his termination of service with PolyOne. As a former employee of The Geon Company (our predecessor), Mr. Patient has been receiving and will continue to receive the same pension benefit amounts and medical coverage he started receiving on August 1, 1999 as a retiree of Geon. The following termination scenarios do not apply to Mr. Patient since his triggering event has already occurred.
Payments and Benefits Upon Termination — As of the End of Fiscal Year 2006
The following tables summarize the amounts payable upon termination under specified circumstances or her employment.upon a change in control. The data in the tables assumes that each triggering event listed in the tables occurred on December 31, 2006 and that the stock price for our common shares is $7.50, the closing sales price of our common shares on December 29, 2006.
45
STEPHEN D. NEWLIN
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Voluntary
| | | | | | | | | | | | | | | | | |
| | | | Termination or
| | | | | | | | | | | | | | | | Involuntary
| |
| | | | Retirement(1)
| | | | Involuntary
| | | | | | | | | | | | Termination
| |
| | | | (No CIC; or,
| | | | Termination
| | | | | | | | Involuntary
| | | | without Cause or
| |
| | | | Following a CIC,
| | | | with Cause
| | | | | | | | Termination
| | | | for Good Reason
| |
| | | | without Good
| | | | (Including
| | | | | | | | without Cause
| | | | (Following a
| |
| | | | Reason) | | | | Following a CIC) | | | | Death/Disability | | | | (No CIC) | | | | CIC) | |
| | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | |
Cash Severance Benefit
(salary continuation, multiple of annual incentive payments and additional cash payment for termination prior to2/21/09) | | | $ | 0 | | | | $ | 0 | | | | $ | 0 | | | | $ | 2,600,003 | | | | $ | 4,700,003 | |
| Annual Incentive for Year of Termination | | | | 0 | | | | | 0 | | | | | 0 | | | | | 959,700 | | | | | 959,700 | |
| Cash LTIP-Vesting of Performance Units | | | | 0 | | | | | 0 | | | | | 343,500 | (2) | | | | 0 | | | | | 1,030,500 | |
| LTIP-Vesting of Phantom Units | | | | 0 | | | | | 0 | | | | | 326,250 | | | | | 0 | | | | | 652,500 | |
| Equity Awards | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Restricted Stock | | | | 0 | | | | | 0 | | | | | 1,500,000 | | | | | 0 | | | | | 1,500,000 | |
| - Performance Shares (LTIP) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| - Unexercisable Stock Options/SARs | | | | 0 | | | | | 0 | | | | | 0 | (3) | | | | 0 | | | | | 0 | |
| Other Benefits | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Continuation of Medical, Dental and Vision Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 20,425 | | | | | 30,637 | |
| - Continuation of Other Benefits (car allowance; other welfare benefits) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 43,200 | | | | | 22,857 | |
| - Financial Planning Services(4) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 39,000 | | | | | 13,000 | |
| - Outplacement Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| - Additional Company Contribution for Defined Contribution Plans Under the Management Continuity Agreement | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 273,000 | |
| Excise Tax Gross Up | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 3,103,837 | |
SUB-TOTAL
(Benefits Triggered Upon a Termination of Employment) | | | | 0 | | | | | 0 | | | | | 2,169,750 | | | | | 3,662,328 | | | | | 12,286,034 | |
PLAN BALANCES/VESTED BENEFITS |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Defined Contribution Plan(s) Balances (includes the Retirement Savings Plan and the Supplemental Retirement Benefit Plan)(5) | | | | 65,677 | | | | | 65,677 | | | | | 65,677 | | | | | 65,677 | | | | | 65,677 | |
| Present Value of Accrued Pension Benefit | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
TOTAL
(Includes Benefits that are Vested and Currently Payable to the Executive) | | | | 65,677 | | | | | 65,677 | | | | | 2,235,427 | | | | | 3,728,005 | | | | | 12,351,711 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| 1 | | Retirement is generally defined as the executive’s attainment of age 55 with 10 years of service. |
|
| 2 | | Assumes achievement of performance goals at the target level of performance. |
|
| 3 | | Assumes a constant share price of $7.50, the closing sales price of our common shares on December 29, 2006. |
|
| 4 | | Assumes the executive takes advantage of the maximum amount of available financial planning services. |
|
| 5 | | Includes amounts disclosed in the “Aggregate Balance at Last FYE” column of the 2006 Nonqualified Deferred Compensation table. |
46
W. DAVID WILSON
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Voluntary
| | | | | | | | | | | | | | | | Involuntary
| |
| | | | Termination or
| | | | Involuntary
| | | | | | | | | | | | Termination
| |
| | | | Retirement(1)
| | | | Termination
| | | | | | | | | | | | without Cause
| |
| | | | (No CIC; or,
| | | | with Cause
| | | | | | | | Involuntary
| | | | or for Good
| |
| | | | Following a
| | | | (Including
| | | | | | | | Termination
| | | | Reason
| |
| | | | CIC, without
| | | | Following a
| | | | | | | | without Cause
| | | | (Following a
| |
| | | | Good Reason) | | | | CIC) | | | | Death/Disability | | | | (No CIC) | | | | CIC) | |
| | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | |
Cash Severance Benefit
(salary continuation, multiple of annual incentive payments) | | | $ | 0 | | | | $ | 0 | | | | $ | 0 | | | | $ | 717,000 | | | | $ | 1,613,250 | |
| Annual Incentive for Year of Termination | | | | 0 | | | | | 0 | | | | | 0 | | | | | 242,707 | | | | | 242,707 | |
| Cash LTIP-Vesting of Performance Units | | | | 0 | | | | | 0 | | | | | 98,733 | (2) | | | | 0 | | | | | 296,200 | |
Equity Awards | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Restricted Stock | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| - Performance Shares (LTIP) | | | | 0 | | | | | 0 | | | | | 178,500 | | | | | 0 | | | | | 267,750 | |
| - Unexercisable Stock Options/SARs | | | | 0 | | | | | 0 | | | | | 13,860 | (3) | | | | 0 | | | | | 62,370 | |
Other Benefits | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Continuation of Medical, Dental and Vision Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 22,465 | | | | | 33,697 | |
| - Continuation of Other Benefits (other welfare benefits) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 17,182 | |
| - Financial Planning Services(4) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 10,000 | |
| - Outplacement Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 9,500 | | | | | 0 | |
| - Additional Company Contribution for Defined Contribution Plans Under the Management Continuity Agreement | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 169,390 | |
| Excise Tax Gross Up | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 1,023,226 | |
SUB-TOTAL
(Benefits Triggered Upon a Termination of Employment) | | | | 0 | | | | | 0 | | | | | 291,093 | | | | | 991,672 | | | | | 3,735,772 | |
PLAN BALANCES/VESTED BENEFITS |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Defined Contribution Plan(s) | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances (includes the Retirement Savings Plan and the Supplemental Retirement Benefit Plan)(5) | | | | 967,075 | | | | | 967,075 | | | | | 967,075 | | | | | 967,075 | | | | | 967,075 | |
| Present Value of Accrued Pension Benefit(6) | | | | 855,373 | | | | | 855,373 | | | | | 427,670 / 855,373 | (7) | | | | 855,373 | | | | | 855,373 | |
TOTAL
(Includes Benefits that are Vested and Currently Payable to the Executive) | | | | 1,822,448 | | | | | 1,822,448 | | | | | 1,685,838 / 2,113,541 | (7) | | | | 2,814,120 | | | | | 5,558,220 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| 1 | | Retirement is generally defined as the executive’s attainment of age 55 with 10 years of service. |
|
| 2 | | Assumes achievement of performance goals at the target level of performance. |
|
| 3 | | Assumes a constant share price of $7.50, the closing sales price of our common shares on December 29, 2006. |
|
| 4 | | Assumes the executive takes advantage of the maximum amount of available financial planning services. |
|
| 5 | | Includes amounts disclosed in the “Aggregate Balance at Last FYE” column of the 2006 Nonqualified Deferred Compensation table. |
|
| 6 | | The numbers shown in the table are illustrative only because lump sum payments are not available. |
|
| 7 | | The first number represents payments received upon death and the second number represents payments received upon disability. |
47
WENDY C. SHIBA
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Voluntary
| | | | | | | | | | | | | | | | | |
| | | | Termination or
| | | | | | | | | | | | | | | | Involuntary
| |
| | | | Retirement(1)
| | | | Involuntary
| | | | | | | | | | | | Termination
| |
| | | | (No CIC; or,
| | | | Termination
| | | | | | | | Involuntary
| | | | without Cause or
| |
| | | | Following a CIC,
| | | | with Cause
| | | | | | | | Termination
| | | | for Good Reason
| |
| | | | without Good
| | | | (Including
| | | | | | | | without Cause
| | | | (Following a
| |
| | | | Reason) | | | | Following a CIC) | | | | Death/Disability | | | | (No CIC) | | | | CIC) | |
| | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | |
| Cash Severance Benefit (salary continuation, multiple of annual incentive payments) | | | $ | 0 | | | | $ | 0 | | | | $ | 0 | | | | $ | 684,000 | | | | $ | 1,539,000 | |
| Annual Incentive for Year of Termination | | | | 0 | | | | | 0 | | | | | 0 | | | | | 231,541 | | | | | 231,541 | |
| Cash LTIP-Vesting of Performance Units | | | | 0 | | | | | 0 | | | | | 75,333 | (2) | | | | 0 | | | | | 226,000 | |
Equity Awards | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Restricted Stock | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| - Performance Shares (LTIP) | | | | 0 | | | | | 0 | | | | | 139,500 | | | | | 0 | | | | | 209,250 | |
| - Unexercisable Stock Options/SARs | | | | 0 | | | | | 0 | | | | | 10,560 | (3) | | | | 0 | | | | | 47,520 | |
Other Benefits | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Continuation of Medical, Dental and Vision Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 406 | | | | | 609 | |
| - Continuation of Other Benefits (other welfare benefits) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 14,404 | |
| - Financial Planning Services(4) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 10,000 | |
| - Outplacement Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 9,500 | | | | | 0 | |
| - Additional Company Contribution for Defined Contribution Plans Under the Management Continuity Agreement | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 100,040 | |
| Excise Tax Gross Up | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 839,624 | |
SUB-TOTAL
(Benefits Triggered Upon a Termination of Employment) | | | | 0 | | | | | 0 | | | | | 225,393 | | | | | 925,447 | | | | | 3,217,988 | |
PLAN BALANCES/VESTED BENEFITS |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Defined Contribution Plan(s) Balances (includes the Retirement Savings Plan and the Supplemental Retirement Benefit Plan)(5) | | | | 359,305 | | | | | 359,305 | | | | | 359,305 | | | | | 359,305 | | | | | 359,305 | |
| Present Value of Accrued Pension Benefit | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
TOTAL
(Includes Benefits that are Vested and Currently Payable to the Executive) | | | | 359,305 | | | | | 359,305 | | | | | 584,698 | | | | | 1,284,752 | | | | | 3,577,293 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| 1 | | Retirement is generally defined as the executive’s attainment of age 55 with 10 years of service. |
|
| 2 | | Assumes achievement of performance goals at the target level of performance. |
|
| 3 | | Assumes a constant share price of $7.50, the closing sales price of our common shares on December 29, 2006. |
|
| 4 | | Assumes the executive takes advantage of the maximum amount of available financial planning services. |
|
| 5 | | Includes amounts disclosed in the “Aggregate Balance at Last FYE” column of the 2006 Nonqualified Deferred Compensation table. |
48
KENNETH M. SMITH
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Voluntary
| | | | | | | | | | | | | | | | | |
| | | | Termination or
| | | | | | | | | | | | | | | | Involuntary
| |
| | | | Retirement(1)
| | | | Involuntary
| | | | | | | | | | | | Termination
| |
| | | | (No CIC; or,
| | | | Termination
| | | | | | | | Involuntary
| | | | without Cause or
| |
| | | | Following a CIC,
| | | | with Cause
| | | | | | | | Termination
| | | | for Good Reason
| |
| | | | without Good
| | | | (Including
| | | | | | | | without Cause
| | | | (Following a
| |
| | | | Reason) | | | | Following a CIC) | | | | Death/Disability | | | | (No CIC) | | | | CIC) | |
| | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | |
Cash Severance Benefit
(salary continuation, multiple of annual incentive payments) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 635,000 | | | | | 1,428,750 | |
| Annual Incentive for Year of Termination | | | | 0 | | | | | 0 | | | | | 0 | | | | | 214,891 | | | | | 214,891 | |
| Cash LTIP-Vesting of Performance Units | | | | 0 | | | | | 0 | | | | | 69,900 | (2) | | | | 0 | | | | | 209,700 | |
Equity Awards | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Restricted Stock | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| - Performance Shares (LTIP) | | | | 0 | | | | | 0 | | | | | 125,000 | | | | | 0 | | | | | 187,500 | |
| - Unexercisable Stock Options/SARs | | | | 0 | | | | | 0 | | | | | 9,834 | (3) | | | | 0 | | | | | 44,253 | |
Other Benefits | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Continuation of Medical, Dental and Vision Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 20,425 | | | | | 30,637 | |
| - Continuation of Other Benefits (other welfare benefits) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 15,873 | |
| - Financial Planning Services(4) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 10,000 | |
| - Outplacement Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 9,500 | | | | | 0 | |
| - Additional Company Contribution for Defined Contribution Plans Under the Management Continuity Agreement | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 139,300 | |
| Excise Tax Gross Up | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 841,906 | |
SUB-TOTAL
(Benefits Triggered Upon a Termination of Employment) | | | | 0 | | | | | 0 | | | | | 204,734 | | | | | 879,816 | | | | | 3,122,810 | |
PLAN BALANCES/VESTED BENEFITS |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Defined Contribution Plan(s) Balances (includes the Retirement Savings Plan and the Supplemental Retirement Benefit Plan)(5) | | | | 459,871 | | | | | 459,871 | | | | | 459,871 | | | | | 459,871 | | | | | 459,871 | |
| Present Value of Accrued Pension Benefit(6) | | | | 352,294 | | | | | 352,294 | | | | | 172,203 / 352,294 | (7) | | | | 352,294 | | | | | 352,294 | |
TOTAL
(Includes Benefits that are Vested and Currently Payable to the Executive) | | | | 812,165 | | | | | 812,165 | | | | | 836,808 / 1,016,899 | (7) | | | | 1,691,981 | | | | | 3,934,975 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| 1 | | Retirement is generally defined as the executive’s attainment of age 55 with 10 years of service. |
|
| 2 | | Assumes achievement of performance goals at the target level of performance. |
|
| 3 | | Assumes a constant share price of $7.50, the closing sales price of our common shares on December 29, 2006. |
|
| 4 | | Assumes the executive takes advantage of the maximum amount of available financial planning services. |
|
| 5 | | Includes amounts disclosed in the “Aggregate Balance at Last FYE” column of the 2006 Nonqualified Deferred Compensation table. |
|
| 6 | | The numbers shown in the table are illustrative only because lump sum payments are not available. |
|
| 7 | | The first number represents payments received upon death and the second number represents payments received upon disability. |
49
BERNARD P. BAERT(1)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Voluntary
| | | | | | | | | | | | | | | | | |
| | | | Termination or
| | | | | | | | | | | | | | | | Involuntary
| |
| | | | Retirement(2)
| | | | Involuntary
| | | | | | | | | | | | Termination
| |
| | | | (No CIC; or,
| | | | Termination
| | | | | | | | Involuntary
| | | | without Cause or
| |
| | | | Following a CIC,
| | | | with Cause
| | | | | | | | Termination
| | | | for Good Reason
| |
| | | | without Good
| | | | (Including
| | | | | | | | without Cause
| | | | (Following a
| |
| | | | Reason) | | | | Following a CIC) | | | | Death/Disability | | | | (No CIC) | | | | CIC) | |
| | | | ($) | | | | ($) | | | | ($) | | | | ($) | | | | ($) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash Severance Benefit
(salary continuation, multiple of annual incentive payments) | | | $ | 0 | | | | $ | 0 | | | | $ | 0 | | | | $ | 0 | | | | $ | 0 | |
| Annual Incentive for Year of Termination | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| Cash LTIP-Vesting of Performance Units | | | | 58,500 | (3) | | | | 0 | | | | | 58,500 | (3) | | | | 0 | | | | | 175,500 | |
| Severance Pay Under Belgian Law | | | | 0 | | | | | 0 | | | | | 0 | | | | | 1,394,540 | (7) | | | | 1,394,540 | (7) |
Equity Awards | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Restricted Stock | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| - Performance Shares (LTIP) | | | | 125,500 | | | | | 0 | | | | | 125,500 | | | | | 0 | | | | | 188,250 | |
| - Unexercisable Stock Options/SARs | | | | 8,250 | (4) | | | | 0 | | | | | 8,250 | (4) | | | | 0 | | | | | 37,125 | |
Other Benefits | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| - Continuation of Medical, Dental and Vision Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| - Continuation of Other Benefits (other welfare benefits) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| - Financial Planning Services(5) | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 8,000 | |
| - Outplacement Benefits | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| - Additional Company Contribution for Defined Contribution PlansUnder the Management Continuity Agreement | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
| Excise Tax Gross Up | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
SUB-TOTAL
(Benefits Triggered Upon a Termination of Employment) | | | | 192,250 | | | | | 0 | | | | | 192,250 | | | | | 1,394,540 | | | | | 1,803,415 | |
PLAN BALANCES/VESTED BENEFITS |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Defined Contribution Plan(s) Balances (includes the Retirement Savings Plan and the Supplemental Retirement Benefit Plan)(6) | | | | 292,182 | | | | | 292,182 | | | | | 292,182 | | | | | 292,182 | | | | | 292,182 | |
| Present Value of Accrued Pension Benefit | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | | | | | 0 | |
TOTAL
(Includes Benefits that are Vested and Currently Payable to the Executive) | | | | 484,432 | | | | | 292,182 | | | | | 484,432 | | | | | 1,686,722 | | | | | 2,095,597 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| 1 | | Based on a conversion rate of €1.00 = $1.25559. |
|
| 2 | | Retirement is generally defined as the executive’s attainment of age 55 with 10 years of service. |
|
| 3 | | Assumes achievement of performance goals at the target level of performance. |
|
| 4 | | Assumes a constant share price of $7.50, the closing sales price of our common shares on December 29, 2006. |
|
| 5 | | Assumes the executive takes advantage of the maximum amount of available financial planning services. |
|
| 6 | | Includes amounts disclosed in the “Aggregate Balance at Last FYE” column of the 2006 Nonqualified Deferred Compensation table. |
|
| 7 | | Assumes payments would be provided as required by Belgian law and not under the Severance Plan or Mr. Baert’s Continuity Agreement. |
50
Compensation and Governance Committee Interlocks and Insider Participation; Certain Relationships and Related TransactionsParticipation During
2003,2006, none of
PolyOne’sour executive officers or Directors was a member of the Board of Directors of any other company where the relationship would be construed to constitute a committee interlock within the meaning of the rules of the Commission.
16
PolyOne Stock PerformancePolicy on Related Person TransactionsFollowing is
Under our Guidelines for Ethical Business Conduct, we prohibit all employees, including our officers and non-employee Directors from engaging in activities that would impact their ability to carry out their duties in an independent, objective fashion. We also have adopted a
graphwritten “Policy for Review of Transactions Between the Company and Its Directors, Executive Officers and Other Related Persons.” This policy requires an initial review by our Chief Legal Officer, Chief Financial Officer and Ethics and Compliance Officer, in consultation with each other (the “Reviewing Team”), of all transactions, arrangements or relationships with us in which any Director, executive officer or other related person (including immediate family members of all related persons) has a direct or indirect material interest, which involve $50,000 or more. Further, the Audit Committee must review and approve any transaction that
compares the
cumulative total shareholder returns for PolyOne’s common shares,Reviewing Team determines may be required to be disclosed pursuant to Item 404 ofRegulation S-K under the
S&P 500 indexSecurities Exchange Act of 1934 or any similar provision. In reviewing the related person transactions, the Reviewing Team and the
S&P Mid Cap Chemicals indexAudit Committee consider the following factors: (1) whether the transaction is in conformity with
dividends assumedour Guidelines for Ethical Business Conduct and is in our best interests; (2) whether the transaction would be in the ordinary course of our business; (3) whether the transaction is on terms comparable to
those that could be
reinvested when received. The graph assumesobtained in arm’s length dealings with an unrelated third party; (4) the
investingdisclosure standards set forth in Item 404 of
$100 from September 1, 2000,Regulation S-K under the
first trading dateSecurities Exchange Act of
PolyOne’s common shares, through December 31, 2003. The S&P Mid Cap Chemicals index includes a broad range1934 or any similar provision; and (5) whether the transaction could call into question the status of
chemical manufacturers. Because ofany Director or Director nominee as an independent director under the
relationship of PolyOne’s business within the chemical industry, it is felt that comparison with this broader index is appropriate.
| | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | 8/31/00 | | | 12/31/00 | | | 12/31/01 | | | 12/31/02 | | | 12/31/03 | | |
|
| | | | | | |
PolyOne Corporation | | | $100 | | | $70.8 | | | $121.3 | | | $49.8 | | | $81.2 | | |
|
| | | | | | |
S&P 500 | | | $100 | | | $87.3 | | | $77.0 | | | $60.0 | | | $77.1 | | |
|
| | | | | | |
S&P Mid Cap Chemicals | | | $100 | | | $107.5 | | | $122.8 | | | $112.0 | | | $132.3 | | |
17
PROPOSAL TO APPROVE THE POLYONE CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
The PolyOne Corporation Deferred Compensation Plan for Non-Employee Directors (the “Plan”) was unanimously adopted by the Board of Directors on February 3, 1994, subject to shareholder approval. The shareholders approved the Plan at the 1994 Annual Meeting on May 5, 1994.
The Plan was amended on February 1, 1996, November 6, 1996, November 4, 1998, August 2, 2000 and September 6, 2000. On February 26, 2004, the Board of Directors adopted resolutions amending the Plan, including a resolution to limit the term of the Plan to ten years. The amended Plan is being submitted to shareholders for approval at the 2004 Annual Meeting, as required by the listing standardsrules of the New York Stock Exchange.
Report of the Compensation and Governance Committee
The Compensation and Governance Committee has reviewed and discussed the Compensation Discussion and Analysis set forth on pages 15 to 28 of this proxy statement with management and, based on this review, has recommended to the Board of Directors the inclusion of the Compensation Discussion and Analysis in this proxy statement.
The Compensation and Governance Committee
of the Board of Directors
Farah M. Walters, Chairperson
J. Douglas Campbell
Carol A. Cartwright
Gale Duff-Bloom
Wayne R. Embry
Richard H. Fearon
Robert A. Garda
Gordon D. Harnett
Edward J. Mooney
51
PROPOSAL 2 — RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has reappointed Ernst & Young LLP as our independent registered public accounting firm to audit our financial statements for the current year. The Board of Directors recommends ratification of the Audit Committee’s appointment of Ernst & Young LLP.
The selection of Ernst & Young LLP as our independent registered public accounting firm is not required to be submitted to a vote of our shareholders for ratification. The Sarbanes-Oxley Act of 2002 requires that the Audit Committee be directly responsible for the appointment, compensation and oversight of our independent auditors. The Board of Directors is submitting the appointment to our shareholders for ratification as a matter of good corporate practice. If our shareholders fail to vote on an advisory basis in favor of the selection, the Audit Committee will reconsider whether to retain Ernst & Young LLP, and may retain that firm or another firm without re-submitting the matter to our shareholders. Even if our shareholders ratify the appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the our best interests and the interests of our shareholders. The affirmative vote of the holders of at least a majority of the shares castvoting on this proposal is necessaryrequired for ratification.
A representative of Ernst & Young LLP is expected to
approvebe present at the
Plan.Annual Meeting of Shareholders. The purposerepresentative will be given an opportunity to make a statement if desired and to respond to questions regarding Ernst & Young LLP’s examination of our consolidated financial statements and records for the Plan is to assist PolyOne in attracting and retaining, as members of theyear ended December 31, 2006.
Our Board of Directors
highly qualified persons who are not employees of PolyOne or its subsidiaries, while at the same time securing for shareholders the inherent benefit of increased share ownership and interest by all non-employee Directors. On this basis, the Board of Directors recommends that the Plan be approved by shareholders.The Board of Directorsunanimously recommends a voteFORProposal 2 to ratify the Plan.Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for 2007.
Independent Registered Public Accountant Services and Related Fee Arrangements
Services provided by Ernst & Young LLP, our independent registered public accounting firm, and related fees in each of the last two fiscal years were as follows:
Audit Fees. Audit services include the annual audit of the financial statements, the audit of internal controls over financial reporting, the reviews of our quarterly reports onForm 10-Q, the issuance of comfort letters, review of registration statements filed with the Securities and Exchange Commission and international statutory audits. Fees for audit services totaled $1,993,300 in 2006 and $1,780,100 in 2005. The Audit Committee pre-approved all audit services and related fee arrangements billed for 2006.
Audit-Related Fees. Audit-related services principally include audits of businesses identified for divestment and audits of our employee benefit plans. Fees for audit-related services totaled $131,300 in 2006 and $188,000 in 2005. The Audit Committee pre-approved all audit-related fee arrangements billed for 2006.
Tax Fees. Tax services include tax compliance, tax advice and tax planning. Fees for tax services totaled $546,900 in 2006 and $575,000 in 2005. The Audit Committee pre-approved all tax fee arrangements billed in 2006.
All Other Fees. Other services principally include transitional support and advisory services related to our expatriate program. Fees for other services totaled $44,600 in 2006 and $60,000 in 2005. The Audit Committee pre-approved all other fee arrangements billed for 2006.
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The followingAudit Committee pre-approves all audit and non-audit services and related fee arrangements performed by Ernst & Young. Unless a type of service Ernst & Young provides has received general pre-approval, it will require specific pre-approval by the Audit Committee. The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee may delegate pre-approval authority to one of its members. However, management has no authority to approve services performed by Ernst & Young that have not been pre-approved by the Audit Committee.
Ernst & Young will provide us a description of
work scope and supportingback-up documentation regarding the
Plan is qualified in its entirety by referencespecific services they will provide. At each meeting of the Audit Committee, the current year’s previously pre-approved independent auditor fees along with any proposed revisions will be presented for approval. Any interim requests between Audit Committee meetings to provide services that require separate pre-approval will be submitted to the
copy ofAudit Committee by Ernst & Young and the
Plan attached to this proxyChief Financial Officer, or Controller, and must include a statement as
Appendix B.Each non-employee Director will be eligible underto whether, in each of their views, the Plan to elect to defer payment of all or a portion of his or her compensation for services as a Director in the form of common shares of PolyOne or in cash to be held in an interest-bearing account maintained under a trust agreement. A non-employee Director must make any such election by filing a written irrevocable election with PolyOne directing PolyOne to reduce amounts payable to him or her and credit the amount of such reduction to an account maintained on PolyOne’s books for such Director (“Deferred Compensation Account”). A Director’s Deferred Compensation Accountrequest is credited with amounts equal to the earnings on the account maintained with respect to the Director under the trust. Non-employee Directors would benefit from the Plan by deferring current Federal income tax on the fees deferred into the Plan. The amount of any benefit to these Directors cannot presently be determined because the amounts elected to be deferred are not presently known.
If a Director elects to defer compensation in the form of common shares, the number of common shares credited to a Director’s Deferred Compensation Account for a calendar quarter shall be equal to 125% of the amount of compensation reduction elected by the Director for such calendar quarter divided by the closing share price on the date PolyOne transfers cash or common shares to a trust maintained by an independent trustee established for such purpose. The aggregate number of common shares that may be granted under this Plan in any fiscal year during the term of this Plan will be equal to one tenth of one percent of the number of common shares outstanding as of the first day of that year.
Distributions of a Director’s Deferred Compensation Account may be in a single lump sum or in a series of installments, each as specified by the Director, and shall be made not more than thirty days after the earlier of (i) the date the Director attains an age (not younger than age 55) specified in his or her election to defer or (ii) the occurrence of change in control of PolyOne. Earlier distributions could be made only in the event of a demonstrated hardship.
Assets held in the trust are to be used for distributions of the Directors’ Deferred Compensation Accounts, but the assets remain subject to the claims of PolyOne’s general creditors, including judgment and bankruptcy creditors, as provided in the trust agreement. As a result, no distributions may be made from the trust if PolyOne
18
is insolvent, meaning subject to a pending bankruptcy proceeding or unable to pay its debts as they mature. The rights of Directors and their beneficiaries to assets of the trust or of PolyOne are no greater than the rights of an unsecured creditor of PolyOne.
In general, a non-employee Director will not recognize taxable income at the time of a deferral of payment of all or a portion of his or her compensation for services as a Director, at the time cash or common shares are transferred to the trust or at the time earnings are credited to his or her Deferred Compensation Account, and PolyOne will not be entitled to a tax deduction at the time of a deferral, at the time cash or common shares are transferred to the trust, or at the time earnings are credited to the Directors’ Deferred Compensation Accounts. An amount equal to the amount of the distribution for a Director’s Deferred Compensation Account will be included in the Director’s ordinary income at the time of the distribution, and PolyOne will be entitled to a tax deduction in the amount of the ordinary income recognized by the Director in the year of the distribution.
The Plan shall terminate on the tenth anniversary of the adoption of the Plan, as amended, at the 2004 Annual Meeting. Once the Plan has terminated, no further shares of Common Stock shall be granted; provided, however, that any Accounts then existing shall continue in accordanceconsistent with the provisions of the Plan until the Accounts are paid out in accordance with the provisions of the Plan. PolyOne reserves the right to amend the Plan at any time; provided, however, that no amendment shall affect the rights of Directors to amounts previously credited to their Accounts or to future income to be credited to their Accounts. In addition, the Board may not make any amendment that would cause the Plan not to comply with Rule 16b-3 of the 1934 Act.
Equity Compensation Plan Information
The following table provides information about PolyOne Corporation’s equity compensation plans (other than qualified employee benefits plans and plans available to shareholdersCommission’s rules on a pro rata basis) as of December 31, 2003.auditor independence.
53
| | | | | | | | |
Plan Category
| | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights (a)
| | Weighted-average
exercise price of
outstanding
options, warrants
and rights (b)
| | Number of securities
remaining available
for future issuance under
equity compensation
plans (excluding
securities reflected in column (a)) (c)
| |
Equity compensation plans approved by stockholders | | 13,630,814 | | $ | 11.11 | | 2,011,614 | (1) |
Equity compensation plans not approved by stockholders (2) | | 195,006 | | $ | 10.36 | | 164,234 | |
| | |
| | | | |
|
|
Total | | 13,825,820 | | | | | 2,175,848 | |
(1) | In addition to options, warrants and rights, each of the 1993 Incentive Stock Plan, the 1995 Incentive Stock Plan, the 1998 Interim Stock Awards Plan, the 1999 Incentive Stock Plan, the Long-Term Incentive Plan and the 2000 Stock Incentive Plan authorize the issuance of restricted stock, performance shares and/or deferred shares. Each of the 1999 Incentive Stock Plan, the Long-Term Incentive Plan and the 2000 Stock Incentive Plan has a separate sub-limit for the total number of shares that may be issued as one or more of these types of awards. The sub-limits are 400,000 restricted shares under the 1999 Incentive Stock Plan, 750,000 restricted and deferred shares and 1,500,000 performance shares under the Long-Term Incentive Plan, and 1,000,000 restricted, performance and deferred shares under the 2000 Stock Incentive Plan. |
(2) | The 1998 Interim Stock Award Plan was adopted by the Board of Directors of one of PolyOne’s predecessors in 1998. The Plan provides for awards in the form of stock options, restricted stock, stock equivalent units, stock appreciation rights, performance shares, and other stock and performance-based incentives. Key employees of PolyOne and its affiliates are eligible for awards. Non-employee directors are not eligible for awards. The Compensation Committee of the Board of Directors administers the Plan and selects award recipients. The maximum number of shares available for
|
19
| awards under the Plan is 375,574. The Compensation Committee has the power to adjust the maximum number of shares available under the Plan and the exercise price of outstanding awards in the event of mergers, consolidations and other corporate transformations, stock dividends, stock splits and other non-cash distributions to shareholders. Unless otherwise determined by the Board of Directors, upon a change in control of PolyOne, all options and rights under the Plan become fully exercisable and all restrictions and conditions applicable to share awards are deemed satisfied.
|
REPORT OF THE AUDIT COMMITTEE The Audit Committee assists the Board of Directors in fulfilling
its oversight responsibilities to shareholders relating to the integrity of the company’s financial statements, the company’s compliance with legal and regulatory requirements, the independent auditors’ qualifications and independence and the performance of the company’s internal audit function and independent auditors. Management has the primary responsibility for the completeness and accuracy of the company’s financial statements and disclosures, the financial reporting process and the
systemseffectiveness of
the company’s internal
controlscontrol over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements in the Annual Report with management and the independent auditors including any significant changes in the company’s selection or application of accounting
principles, any major issues as toprinciples. The Committee also reviewed and discussed with management and the
adequacy of the company’sindependent auditors management’s report on internal controls
over financial reporting, including the significance and
any special steps adopted in lightstatus of
material control
deficiencies.deficiencies identified by management and the results of remediation efforts undertaken, to determine the effectiveness of internal controls over financial reporting at December 31, 2006.
The Committee reviewed with the independent auditors, which have the responsibility for expressing an opinion on the conformity of the financial statements with generally accepted accounting principles and applicable rules and regulations, their judgments as to the quality, not just the acceptability, of PolyOne’s critical accounting principles and estimates and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. The Committee
also reviewed with the independent auditors their report on the company’s internal controls over financial reporting at December 31, 2006, including the basis for their conclusions. The Committee has discussed with the independent auditors the auditors’ independence from management and PolyOne, including the matters in the written disclosures required by the Independence Standards Board. In doing so, it has considered the compatibility of non-audit services with the auditors’ independence. The Committee has
also pre-approved all audit and non-audit services and fees provided to the company by the independent auditors. Based upon the Committee’s considerations, the Committee has concluded that Ernst & Young LLP is independent. The Committee discussed with PolyOne’s internal and independent auditors the overall scope and
audit plans
forand evaluated their
respective audits.performance. The Committee meets with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of PolyOne’s internal controls over financial reporting, and the overall quality of PolyOne’s financial reporting. The Audit Committee met
fivenine times during
2003.2006.
In reliance on the reviews and discussions referred to above, the 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,
2003,2006, for filing with the Securities and Exchange Commission.
The Committee has re-appointed Ernst & Young as independent auditors for the year
2004.2007.
All members of the Audit Committee concur in this report.
THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
The Audit Committee of
the Board of Directors
Gordon D. Harnett, Chairperson
Richard H. Fearon
Robert A. Garda
David H. Hoag
William F. Patient
February 26, 200419, 2007
54
20
INDEPENDENT AUDITORS
The Audit Committee has reappointed Ernst & Young LLP as independent auditors to audit PolyOne’s financial statements for the current year. A representative of Ernst & Young LLP is expected to be present at the Annual Meeting of Shareholders. The representative will be given an opportunity to make a statement if desired and to respond to questions regarding Ernst & Young LLP’s examination of our consolidated financial statements and records for the year ended December 31, 2003. Fees for 2003 and 2002 were as follows:
Audit Fees. Fees for audit services totaled $1,373,200 in 2003 and $1,318,900 in 2002, including fees associated with the annual audit of the financial statements, the reviews of PolyOne’s quarterly reports on Form 10-Q, the issuance of comfort letters, review of registration statements filed with the Securities and Exchange Commission and international statutory audits.
Audit-Related Fees. Fees for audit-related services totaled $405,000 in 2003 and $191,200 in 2002. Audit-related services principally include audits of businesses identified for divestment and audits of PolyOne’s employee benefit plans. The Audit Committee pre-approved all audit-related fees billed for 2003.
Tax Fees. Fees for tax services, including tax compliance, tax advice and tax planning, totaled $865,000 in 2003 and $1,161,700 in 2002. The Audit Committee pre-approved all tax fees billed in 2003.
All Other Fees. Fees for other services not included in the above categories totaled $310,000 in 2003 and $299,000 in 2002 and principally include transitional support and advisory services related to PolyOne’s expatriate program. The Audit Committee pre-approved all other fees billed for 2003.
The Audit Committee pre-approves all fees for services performed by Ernst & Young, including audit and non-audit services. Unless a type of service Ernst & Young provides has received general pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee. The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee may delegate pre-approval authority to one of its members. However, management has no authority to approve services performed by Ernst & Young that have not been pre-approved by the Audit Committee.
Ernst & Young will provide a description of work scope and supporting back-up documentation regarding the specific services they will provide to PolyOne. At each meeting of the Audit Committee, the current year’s previously pre-approved independent auditor fees and any proposed revisions will be reviewed and approved. Any interim requests between Audit Committee meetings to provide services that require separate pre-approval will be submitted to the Audit Committee by Ernst & Young and the Chief Financial Officer, or Controller, and must include a statement as to whether, in each of their views, the request is consistent with the Commission’s rules on auditor independence.
Shareholders of record at the close of business on March
22, 2004,12, 2007, are entitled to vote at the meeting. On that date, a total of
91,612,35892,863,243 common shares were outstanding. Each share is entitled to one vote.
The affirmative vote of a majority of the common shares represented and voting, in person or by proxy, at any meeting of shareholders at which a quorum is present is required for action by shareholders on any matter, unless the vote of a greater number of shares or voting by classes or series is required under Ohio law. Abstentions and broker non-votes are tabulated in determining the votes present at a
meeting. Consequently, an abstention ormeeting for purposes of determining a
broker non-vote has the same effect as a vote against a proposal or a Director nominee, as each abstention or broker non-vote would be one less vote in favor of a proposal or for a Director nominee.quorum. Shareholders will not be entitled to dissenter’s rights with respect to any matter to be considered at the Annual Meeting.
21
Holders of common shares have no cumulative voting rights.
Directors are elected by a plurality of the votes of shares present, in person or by proxy, and entitled to vote on the election of Directors at a meeting at which a quorum is present.
An abstention or a broker non-vote has the same effect as a vote against a Director nominee, as each abstention or broker non-vote would be one less vote in favor of a Director nominee. Holders of common shares have no cumulative voting rights. If any of the nominees listed on pages 3
andthrough 4 becomes unable or declines to serve as a Director, each properly signed proxy card will be voted for another person recommended by the Board of Directors, however, we have no reason to believe that this will occur.
The affirmative vote of holders of at least a majority of the shares cast, in person or by proxy, is necessary for
approvalthe ratification of the
PolyOne Corporation Deferred Compensation Plan for Non-Employee Directors.appointment of Ernst & Young LLP as our independent registered public accounting firm. An abstention or broker non-vote will have no effect on this proposal as the abstention or broker non-vote will not be counted in determining the number of votes cast.
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.
Any shareholder who wishes to submit a proposal to be considered for inclusion in next year’s Proxy Statement should send the proposal to
PolyOne,us, addressed to the Secretary, so that it is received on or before
December 6, 2004.November 27, 2007. We suggest that all proposals be sent by certified mail, return receipt requested.
Additionally, a shareholder may submit a proposal for consideration at the
20052008 Annual Meeting of Shareholders, but not for inclusion in next year’s Proxy Statement, if the shareholder gives timely written notice of such proposal in accordance with Regulation 8(c) of
PolyOne’sour Regulations. In general, Regulation 8(c) provides that, to be timely, a shareholder’s notice must be delivered to
PolyOne’sour principal executive offices not less than 60 nor more than 90 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s annual meeting.
Our proxy materials for the 20042007 Annual Meeting of Shareholders will be mailed on or about April 5, 2004.March 26, 2007. Sixty days prior to the first anniversary of this date will be February 4, 2005,January 26, 2008, and 90 days prior to the first anniversary of this date will be January 5, 2005.December 27, 2007. Our proxies for the 20052008 Annual Meeting of Shareholders will confer discretionary authority to vote on any matter if we do not receive timely written notice of such matter in accordance with Regulation 8(c). For business
55
to be properly requested by a shareholder to be brought before the
20052008 Annual Meeting of Shareholders, the shareholder must comply with all of the requirements of Regulation 8(c), not just the timeliness requirements set forth above.
Proxy SolicitationPolyOne is
We are making this proxy solicitation and will bear the expense of preparing, printing and mailing this notice and proxy statement. In addition to requesting proxies by mail,
PolyOne’sour officers and regular employees may request proxies by telephone or in person. We have retained Morrow & Co., Inc., 445 Park Avenue, New York, NY 10022, to assist in the solicitation for an estimated fee of
$6,000$6,500 plus reasonable expenses. We will ask custodians, nominees, and fiduciaries to send proxy material to beneficial owners in order to obtain voting instructions. We will, upon request, reimburse them for their reasonable expenses for mailing the proxy material.
We are mailing
PolyOne’sour Annual Report to Shareholders, including consolidated financial statements for the year ended December 31,
2003,2006, to shareholders of record with this proxy statement.
For the Board of Directors
PolyOne Corporation
WENDY
Senior Vice President, Chief Legal Officer
March 29, 200421, 2007
56
22
APPENDIX A
POLYONE CORPORATION
AUDIT COMMITTEE CHARTER
Authority
The Board of Directors, by resolution dated August 31, 2000 established the Audit Committee. The Audit Committee Charter was first adopted by the Board on September 6, 2000 and amended subsequently, the last amendment being December 10, 2003.
Purpose
The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities to shareholders relating to (1) the integrity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence, and (4) the performance of the Company’s internal audit function and independent auditors.
The Audit Committee must prepare the report required by the rules of the Securities and Exchange Commission (the “Commission”) to be included in the Company’s annual proxy statement.
Committee Membership
The Audit Committee shall consist of no fewer than three members. The members of the Audit Committee shall meet the independence, financial literacy and experience requirements of the New York Stock Exchange, the Securities Exchange Act of 1934 and the rules and regulations of the Commission. At least one member of the Audit Committee shall be a financial expert as defined by the Commission. Audit Committee members shall not simultaneously serve on the audit committees of more than two other public companies.
The members of the Audit Committee shall be appointed by the Board on the recommendation of the Compensation & Governance Committee. Audit Committee members may be replaced by the Board.
Meetings
The Audit Committee shall meet as often as it deems necessary, but not less frequently than four times a year. A majority of the Committee members will be a quorum for the transaction of business and the action of a majority of those present at a meeting at which a quorum is present will be the act of the Committee. Any action which may be taken at a meeting of the Committee will be deemed the action of the Committee if all of the Committee members execute a written consent and the consent is filed with the Corporate Secretary.
The Audit Committee shall meet periodically with management, the director of internal audit, the chief legal officer and the independent auditor in separate executive sessions. The Audit Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
Committee Authority and Responsibilities
The Audit Committee must directly appoint, retain, evaluate and terminate the Company’s independent auditors. The Audit Committee is directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor reports directly to the Audit Committee.
A-1
The Audit Committee has the sole authority to approve all audit engagement fees and terms, as well as all non-audit engagements (including the fees and terms thereof) to be performed for the Company by its independent auditor. The Audit Committee has adopted a separate policy covering the pre-approval of independent auditor services and fees.
The Audit Committee may form and delegate authority to subcommittees, consisting of the chairperson of the committee, or other members when appropriate. Such delegation of authority may include the review of the Company’s quarterly earnings press releases and related financial information and the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee shall be presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee has the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors.
The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of:
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| | | | | | | 000004 | | | 000000000.000000 ext 000000000.000000 ext
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DESIGNATION (IF ANY)
ADD 1
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| | Electronic Voting InstructionsYou can vote by Internet or telephone!
Available 24 hours a day, 7 days a week!Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on May 10, 2007. |
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| | | | | | | | | |  | | Vote by Internet • Log on to the Internet and go to www.investorvote.com
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| | | | | | | | | |  | | Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the United States, Canada & Puerto Rico any time on a touch tone telephone. There isNO CHARGEto you for the call. |
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| Using ablack ink pen, mark your votes with an Xas shown in this example. Please do not write outside the designated areas. | | x | | | | | | |
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Annual Meeting Proxy Card | |  | | C0123456789 | | 12345 | | |
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6IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
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| A | | Proposals — The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposal 2. |
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| 1. | Compensation | Election of Directors: | | 01 - J. Douglas Campbell | | 02 - Carol A. Cartwright | | 03 - Gale Duff-Bloom |
| | | | 04 - Richard H. Fearon | | 05 - Robert A. Garda | | 06 - Gordon D. Harnett | | + |
| | | | 07 - Edward J. Mooney | | 08 - Stephen D. Newlin | | 09 - Farah M. Walters | | |
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| | o | | Mark here to anyvote FOR all nominees |
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| | o | | Mark here to WITHHOLD vote from all nominees |
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| | | o | | For All EXCEPT— To withhold a vote for one or more nominees, mark the box to the left and the corresponding numbered box(es) to the right. | | o | | o | | o | | o | | o | | o | | o | | o | | o | | |
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| | | | For | | Against | | Abstain | | | | | | | | |
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| 2. | | Proposal to ratify the appointment of Ernst & Young LLP as PolyOne’s independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company;year ending December 31, 2007. | | o | | o | | o | | | | | | | | |
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| B | | Non-Voting Items | | | | | | | | |
| | 2. | Compensation | | | | |
Change of Address— Please print your new address below. | | Comments— Please print your comments below. | | Meeting Attendance
Mark the box to any outside legal, accounting or other advisors employed by the Audit Committee;right if
you plan to attend the
Annual Meeting. | | |
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| | 3. | Ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties |
| C | | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditor.
The Audit Committee must make regular reports to the Board of Directors. The Audit Committee shall annually review its Charter and recommend changes to the Compensation and Governance Committee and the Audit Committee shall annually review its own performance.
The Audit Committee, to the extent required by law or regulation and as the Committee deems necessary or appropriate, shall perform the following duties:
Financial Statement and Disclosure Matters
1. | Discuss with management and the independent auditor the annual audited financial statements and quarterly financial statements, including the Company’s disclosures in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. |
2. | Discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including any significant changes in the Company’s selection or application of accounting principles, any major issues as to the adequacy of the Company’s internal controls and any special steps adopted in light of material control deficiencies. |
3. | Discuss the Company’s quarterly earnings press releases, as well as the types of financial information and earnings guidance, if any, provided to investors, analysts, rating agencies or financial institutions. |
4. | Discuss with management and the independent auditor the effect of regulatory and accounting initiatives on the Company’s financial statements. |
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5. | Discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies. |
6. | Discuss with the independent auditor the matters relating to the conduct of the audit, including any difficulties encountered in the course of the audit work and management’s response, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management. |
7. | Review disclosures made to the Audit Committee by the Company’s CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls. |
Oversight | of the Company’s Relationship with the Independent Auditor |
1. | Obtain and review a report from the independent auditor at least annually regarding: |
| | (a) | | | | | | | |
| Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. |
| Date (mm/dd/yyyy) — Please print date below. | | Signature 1 — Please keep signature within the independent auditor’s internal quality-control procedures;box. | | Signature 2 — Please keep signature within the box. | | |
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| | (b) | any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm; |
| | (c) | any steps taken to deal with any such issues, and to assess the auditor’s independence; and |
| | (d) | all relationships between the independent auditor and the Company. | | | | |
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2. | Evaluate the qualifications, performance and independence of the independent auditor. |
3. | Ensure that clear hiring policies are set for the Company’s hiring of employees or former employees of the independent auditor that participated in any capacity in the audit of the Company. |
4. | Meet with the independent auditor prior to the audit to discuss the scope of the audit. |
Oversight of the Company’s Internal Audit Function
1. | Review the appointment and replacement of the director of internal audit. |
2. | Review reports to management and the Audit Committee related to on-going assessments of the Company’s risk management processes and system of internal control. |
3. | Review the internal audit plan and staffing. |
4. | Discuss with the independent auditor and management the sufficiency of the internal audit department responsibilities, plans, budget and staffing. |
Compliance Oversight Responsibilities
1. | Discuss with management, the independent auditor and the internal auditor whether they have knowledge of any illegal acts in the Company. |
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2. | Review and discuss with management, the Ethics Committee, and the internal and independent auditors employee compliance with the Company’s Codes of Business Conduct and Ethics. Review and discuss with management, the chief legal officer and the independent auditor the Company’s compliance with laws and regulations. Advise the Board with respect to the Company’s policies and procedures regarding compliance with the Company’s Codes of Business Conduct and Ethics. |
3. | Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. |
4. | Discuss with management and the independent auditor any correspondence with regulators or governmental agencies and any published reports that raise material issues regarding the Company’s financial statements or accounting policies. |
5. | Periodically review with the chief legal officer any legal or regulatory matters that may have a material impact on the Company’s financial statements or compliance programs, along with any material pending claims and litigation involving the Company. |
6. | Review with the chief legal officer the investigation and disposition of any reports made under the Commission’s Rule 205 of a material violation of securities law or breach of fiduciary duty or similar violation by the Company or by any of its officers, directors, employees or agents. |
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APPENDIX B
POLYONE CORPORATION
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
(Effective December 9, 1993)
(Amended February 1, 1996, November 6, 1996, November 4, 1998, August 2, 2000, September 6, 2000 and February 26, 2004)
ARTICLE I
PURPOSE OF THE PLAN
The purpose of the PolyOne Corporation (the “Company”) Deferred Compensation Plan for Non-Employee Directors is to provide any Non-Employee Director of the Company the option to defer receipt of the compensation payable for services as a Director and to build loyalty to the Company through increased ownership in the Company’s Common Stock.
ARTICLE II
DEFINITIONS
As used herein, the following words shall have the meaning stated after them unless otherwise specifically provided:
2.1 “Calendar Year” shall mean the twelve month period January 1 through December 31.
2.2 “Change of Control” shall mean:
(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of the Company where such acquisition causes such Person to own 20% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not be deemed to result in a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsection (c) below; provided, further, that if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 20% as a result of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additional voting securities of the Company, such subsequent acquisition shall be treated as an acquisition that causes such Person to own 20% or more of the Outstanding Company Voting Securities; and provided, further, that if at least a majority of the members of the Incumbent Board determines in good faith that a Person has acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the Outstanding Company Voting Securities inadvertently, and such Person divests as promptly as practicable a sufficient number of shares so that such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) less than 20% of the Outstanding Company Voting Securities, then no Change of Control shall have occurred as a result of such Person’s acquisition; or
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(ii) individuals who, as of November 6, 1996, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to November 6, 1996 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(iii) The consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (“Business Combination”); excluding, however, such a Business Combination pursuant to which (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company;
except that, notwithstanding the foregoing, neither the transactions contemplated by, nor any event, fact or circumstance arising out of or in connection with, the Agreement and Plan of Consolidation, dated as of May 7, 2000, as amended as of August 15, 2000, by and between The Geon Company, M.A. Hanna Company, and Consolidation Corp. (the “Consolidation Agreement”), shall constitute, give rise to, or result in a “Change of Control” for the purposes of this Plan.
2.3 “Committee” shall mean the Compensation Committee described in Section 8.1 hereof.
2.4 “Common stock” or “stock” means (i) for periods prior to the Effective Time, Common Stock, $.10 par value, of The Geon Company, a Delaware corporation, and (ii) for periods from and after the Effective Time, common shares, par value $.01 per share, of PolyOne, including in both cases authorized and unissued shares, treasury shares, and shares transferred from The Geon Share Ownership Trust and/or the M.A. Hanna Company Associates Ownership Trust.
2.5 “Company” means (i) for periods prior to the Effective Time, The Geon Company, a Delaware corporation, and (ii) for periods from and after the Effective Time, PolyOne.
2.6 “Effective Time” means the Effective Time as defined in the Consolidation Agreement.
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2.7 “Director” shall mean any non-employee director of the Company.
2.8 “PolyOne” means PolyOne Corporation, an Ohio corporation, the corporation resulting from the consolidation contemplated by the Consolidation Agreement.
ARTICLE III
ELECTIONS BY DIRECTORS
3.1 Election to Defer. A Director may elect to defer receipt of the compensation payable to him or her for future services as a Director. Such election shall be made on an election form specified by the Committee (“Election Form”). Such election shall indicate the portion of the Director’s compensation to be invested in an interest-bearing account and the portion of such compensation to be invested in Common Stock.
3.2 Effectiveness of Elections. Elections shall be effective and irrevocable upon the delivery of an Election Form to the Committee. Subject to the provisions of Article VI, amounts deferred pursuant to such elections shall be distributed at the time and in the manner set forth in such election.
3.3 Amendment and Termination of Elections. A Director may terminate or amend his or her election to defer receipt of compensation by written notice delivered to the Committee prior to the commencement of the period with respect to which such compensation will be earned. Amendments which serve only to change the beneficiary designation shall be permitted at any time and as often as necessary. Amounts credited to a Director’s Account pursuant to Section 5.2 hereof prior to the effective date of any termination or amendment shall not be affected thereby and shall be paid at the time and in the manner specified in the election form in effect when the deferral occurred.
ARTICLE IV
COMMON STOCK AVAILABLE UNDER THE PLAN
4.1 Common Stock. The aggregate number of shares of Common Stock that may be granted under this Plan in any fiscal year of the Company during the term of this Plan will be equal to one tenth of one percent (0.1 %) of the number of shares of Common Stock outstanding as of the first day of that fiscal year. Shares of Common Stock awarded to a Director as compensation pursuant to any other plan or arrangement of the Company, the receipt of which the Director defers pursuant to this Plan, shall not reduce the number of shares of Common Stock that may be granted under this Plan in accordance with the immediately preceding sentence.
4.2 Adjustment. In the event of any change in the Common Stock of the Company by reason of a merger, consolidation, reorganization, or similar transaction, or in the event of a stock dividend, stock split, or distribution to shareholders (other than normal cash dividends), the Committee will adjust the number and class of shares that may be issued under this Plan, the number and class of shares subject to outstanding deferrals, and the fair market value of the Common Stock, and other determinations applicable to outstanding awards.
ARTICLE V
ACCOUNTS
5.1 Accounts. The Company shall establish and maintain a Deferred Compensation Account (an “Account”) for each Director who elects to defer compensation under the Plan. If the Director elects to have deferred compensation invested in an interest-bearing account, the Company shall credit the Account of the Director with an amount equal to one hundred percent (100%) of the compensation deferred pursuant to this Plan. Subject to the limitation stated in the last sentence of this Section 5.1, in the event that a Director elects to have some or all of his or her compensation invested in Common Stock, then the Company shall credit the Account of the Director with an amount equal to one hundred twenty-five percent (125%) of such compensation, in the form of a number of shares of Common Stock, valued at its Fair Market Value. As used herein, the Fair
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Market Value of Common Stock shall be the average of the high and low prices of the Company’s Common Stock as reported on the composite tape for securities listed on the New York Stock Exchange for the date immediately preceding the date of crediting the Account, provided that if no sales of Common Stock were made on said exchange on that date, the Fair Market Value shall be the average of the high and low prices of Common Stock as reported on said composite tape for the preceding day on which sales of Common Stock were made on said Exchange. The Accounts shall be credited as of the date on which the compensation would otherwise have been paid to the Director, if not deferred under the Plan. Notwithstanding the foregoing, in the event that a Director elects to defer compensation that, but for the Director’s election to defer, the Director would have received in the form of Common Stock (rather than cash or some other non-stock form of compensation), then the Company shall credit the Account of the Director with an amount equal to one hundred percent (100%) of such compensation, in the form of the number of shares of Common Stock otherwise payable to the Director under the plan or arrangement of the Company providing for the payment of such compensation, valued as provided in the plan or arrangement of the Company providing for the payment of such compensation or, if no such provision is made, at its Fair Market Value.
5.2 Adjustment of Accounts. As of December 31 of each Calendar Year and on such other dates as the Committee directs, the fair market value of the Account of each Director shall be determined by crediting to the Account an amount equal to the income earned during the Calendar Year, or other appropriate period, the number of shares of Common Stock credited to the Account, and then determining the fair market value of the shares and other amounts credited to the Account.
ARTICLE VI
PAYMENT OF ACCOUNTS
6.1 Time of Payment. Payment of the amount credited to a Director’s Account shall commence upon a date which is not more than thirty days after the earlier of (i) the attainment of the date specified (not younger than age 55) in his Election Form or (ii) upon a Change of Control; provided, however, that no Director who, immediately following the effectiveness of the consolidation contemplated by the Consolidation Agreement, is a director of the corporation resulting from the consolidation shall, for purposes of any such Election Form, be deemed to have retired from or otherwise terminated his or her service as a Director by reason of the consolidation.
6.2 [WITH RESPECT TO AMOUNTS DEFERRED PRIOR TO JANUARY 1, 1996]Method of Payment. The amount credited to a Director’s Deferred Compensation Account shall be paid, in whole or in part, to the Director in a lump sum and/or in annual installments over a period of not more than ten years as specified in each Director’s Election Form. Deferred Compensation Accounts shall be paid in kind, in cash, or shares of Common Stock, as credited to the Account.
[WITH RESPECT TO AMOUNTS DEFERRED FROM AND AFTER JANUARY 1, 1996]Method of Payment. The amount credited to a Director’s Deferred Compensation Account shall be paid, in whole or in part, to the Director in a lump sum and/or in annual installments over a period of not more than ten years as specified in each Director’s Election Form. A Director may elect to change his or her original payment period election, as specified in such Director’s Election Form; provided, that (i) such change is approved by the Committee, and (ii) the election to change is made at least 18 months prior to the date specified in the electing Director’s Election Form on which payment of the amount credited to the Director’s account is to commence, and such election to change shall apply to all of the Director’s Election Forms with respect to amounts deferred under the Plan from and after January 1, 1996. In the event that a Director who makes an election to change is a member of the Committee, such Director shall abstain from the Committee’s determination whether or not to approve the change. Deferred Compensation Accounts shall be paid in kind, in cash, or shares of Common Stock, as credited to the Account.
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6.3 Hardship Distribution. Prior to the time a Director’s Account becomes payable, the Committee, in its sole discretion, may elect to distribute all or a portion of the Director’s Account in the event such Director requests a distribution on account of severe financial hardship. For purposes of this Plan, severe financial hardship shall be deemed to exist in the event the Committee determines that a Director needs a distribution to meet immediate and heavy financial needs resulting from a sudden or unexpected illness or accident of the Director or a member of his or her family, loss of the Director’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Director. A distribution based on financial hardship shall not exceed the amount required to meet the immediate financial need created by the hardship. The amount of a Director’s Account shall be reduced by the amount of any hardship distribution to such Director.
6.4 Designation of Beneficiary. Upon the death of a Director, the amount credited to his or her Account shall be paid to the beneficiary or beneficiaries designated by him or her. If there is no designated beneficiary, or no designated beneficiary surviving at a Director’s death, payment of a Director’s Account shall be made to his or her estate. Beneficiary designations shall be made in writing. A Director may designate a new beneficiary or beneficiaries at any time by notifying the Committee.
6.5 Taxes. In the event any taxes are required by law to be withheld or paid from any payments made pursuant to the Plan, the appropriate amounts shall be deducted from such payments and transmitted to the appropriate taxing authority.
ARTICLE VII
CREDITORS
7.1 Claims of the Company’s Creditors. The rights of a Director or his or her beneficiaries to any payment under the Plan shall be no greater than the rights of an unsecured creditor of the Company.
ARTICLE VIII
ADMINISTRATION
8.1 Appointment of Committee. The Board of Directors of the Company shall appoint a Committee consisting of not less than three persons to administer the Plan. Members of the Committee shall hold office at the pleasure of the Board of Directors and may be dismissed at any time with or without cause. Such persons serving on the Committee need not be members of the Board of Directors of the Company.
8.2 Powers of the Committee. The Committee shall administer the Plan and resolve all questions of interpretation arising under the Plan with the help of legal counsel, if necessary. Whenever directions, designations, applications, requests or other notices are to be given by a Director under the Plan, they shall be filed with the Committee. The Committee shall have no discretion with respect to Plan contributions or distributions but shall act in an administrative capacity only. Except as provided in the immediately following sentence, all decisions by the Committee will be made with the approval of not less than a majority of its members. In furtherance and not in limitation of the authority granted in clause (vi) of this paragraph, any interpretation by a majority of the Incumbent Directors then serving on the Committee as to whether a sale or other disposition of assets by the Company or an acquisition of assets of another corporation constitutes a “sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation” for purposes of clause (iii) of the definition of “Change of Control” in Section 2.2 hereof shall be final and binding for all purposes of this Plan and any Accounts hereunder, notwithstanding that the transaction in question was, or is contemplated to be, submitted to stockholders of the Company for their approval and notwithstanding such approval.
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ARTICLE IX
MISCELLANEOUS
9.1 Term of Plan. The Plan shall terminate on the tenth anniversary of the adoption of the Plan, as amended, at the 2004 Annual Meeting. Once the Plan has terminated, no further shares of Common Stock shall be granted; provided, however, that any Accounts then existing shall continue in accordance with the provisions of the Plan until the Accounts are paid out in accordance with the provisions of Article VI. The Company reserves the right to amend the Plan at any time; provided, however, that no amendment shall affect the rights of Directors to amounts previously credited to their Accounts pursuant to Section 5.1 or to future income to be credited to their Accounts pursuant to Section 5.2.
9.2 Assignment. No right or interest of any Director (or any person claiming through or under such Director) in any benefit or payment herefrom other than the surviving spouse of such Director after he or she is deceased, shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance, or other legal process or in any manner be liable for or subject to the debts or liabilities of such Director. If any Director or any such person (other than the surviving spouse of such Director after he or she is deceased) shall attempt to or shall transfer, assign, alienate, anticipate, sell, pledge, or otherwise encumber his or her benefits hereunder or any part thereof, or if by reason of his or her bankruptcy or other event happening at any time such benefits would devolve upon anyone else or would not be enjoyed by him or her, then the Committee, in its discretion, may terminate his or her interest in any such benefit to the extent the Committee considers necessary or advisable to prevent or limit the effects of such occurrence. Termination shall be effected by filing a written “termination declaration” with the Committee records and making reasonable efforts to deliver a copy to such Director or his or her legal representative.
As long as any Director is alive, any benefits affected by the termination may, in the Committee’s sole and absolute judgment, be paid to or expended for the benefit of such Director, his or her spouse, his or her children or any other person or persons in fact dependent upon him or her in such a manner as the Committee shall deem proper. Upon the death of any Director, all benefits withheld from him or her and not paid to others in accordance with the preceding sentence shall be distributed to such Director’s estate or to his or her creditors and if such Director shall have descendants, including adopted children, then living, distribution shall be made to such Director’s then living descendants, including adopted children, per stirpes.
9.3 Effective Date of Plan. The Plan shall be effective as of December 9, 1993, subject to approval by the stockholders of the Company. Any amounts credited to a Director’s Deferred Compensation Account prior to such stockholder approval shall be contingent on such approval.
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POLYONE CORPORATION C/O EQUISERVE TRUST COMPANY N.A. P.O. BOX 8640 EDISON, NJ 08818-8640 Your vote is important. Casting your vote in one of the three ways described on this instruction card votes all common shares of PolyOne Corporation that you are entitled to vote. Please consider the issues discussed in the Proxy Statement and cast your vote by: Your vote is important. Please vote immediately. Vote-by-Internet Vote-by-Telephone OR Log on to the Internet and go to Call toll-free http://www.eproxyvote.com/pol 1-877-PRX-VOTE (1-877-779-8683) You can vote by phone or via the Internet anytime prior to May 19, 2004 at 11:59pm (EDT). If you do so, you do not need to mail in your proxy card. DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL 5969 Please mark X votes as in this example. This Proxy, when properly executed, will be voted in the manner directed. If no direction is made, this Proxy will be voted FOR all of the Director nominees listed below and FOR approval of the PolyOne Corporation Deferred Compensation Plan for Non-Employee Directors. The Board of Directors recommends a vote FOR the Director nominees listed below and FOR approval of the PolyOne Corporation Deferred Compensation Plan for Non-Employee Directors. 1. Election of Directors Nominees: term to expire at next 01. Carol A. Cartwright 06. Gordon D. Harnett FOR AGAINST ABSTAIN FOR WITHHELD Annual Meeting. 02. Gale Duff-Bloom 07. David H. Hoag 2. Proposal to approve the FOR WITHHELD ALL FROM ALL 03. J. Douglas Campbell 08. William F. Patient Polyone Corporation NOMINEES NOMINEES 04. Wayne R. Embry 09. Thomas A. Waltermire Deferred Compensation 05. Robert A. Garda 10. Farah M. Walters Plan for Non-Employee Directors. For all nominees, except as written above Change of Address and/ or Comments Mark Here I Will Attend the Meeting In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof and matters incident to the conduct of the meeting. The signer hereby revokes all Proxies previously given by the signer to vote at the meeting or any adjournments. Please mark, sign, date and return this Proxy promptly using the enclosed envelope. Please sign exactly as the name appears on this card. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by general partner. Signature: ________________________________ Date: _____________ Signature: ________________________________ Date: _____________
March __, 2004 21, 2007
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders to be held at The Forum Conference and Education Center, 1375 E. Ninth Street, Cleveland, Ohio, at 9:00 a.m. on Thursday, May 20, 2004. 10, 2007.
The Notice of Annual Meeting of Shareholders and the Proxy Statement describe the matters to be acted upon at the meeting.
Regardless of the number of shares you own, your vote on these matters is important. Whether or not you plan to attend the meeting, we urge you to mark your choices on the attached proxy card and to sign, date and return it in the envelope provided. If you decide to vote in person at the meeting, you will have an opportunity to revoke your Proxy and vote personally by ballot. IF YOU PLAN TO ATTEND THE MEETING, PLEASE MARK THE BOX PROVIDED ON THE PROXY CARD.
If you plan to attend the meeting, please mark the box provided on the proxy card.
We look forward to seeing you at the meeting. WILLIAM F. PATIENT
STEPHEN D. NEWLIN
Chairman of the Board, President and
Chief Executive Officer
6 PLEASE FOLD ALONG THE PERFORATION, DETACH HERE POLYONE CORPORATION PROXY AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.6
Proxy — PolyOne Corporation
ANNUAL MEETING OF SHAREHOLDERS, MAY 20, 2004 P 10, 2007
This Proxyproxy is Solicited on Behalf of the Corporation’s Board of Directors R
The undersigned hereby appoints Thomas A. Waltermire andKenneth M. Smith, Wendy C. Shiba and W. David Wilson, and each of them jointly and severally, Proxies, with full power of substitution, to vote, as designated on the reverse side, O all common shares of PolyOne Corporation held of record by the undersigned on March 22, 2004,12, 2007, at X the Annual Meeting of Shareholders to be held on May 20, 2004,10, 2007, or any adjournment thereof. Y THE BOARD OF DIRECTORS RECOMMENDS A VOTE
The Board of Directors recommends a vote (1) “FOR” THE ELECTION OF THE NOMINEES TO SERVE AS DIRECTORS AND FOR THE APPROVAL OF THE DIRECTORS’ DEFERRED COMPENSATION PLAN.Thethe election of the nominees to serve as Directors and (2) “FOR” the ratification of the appointment of Ernst & Young LLP as PolyOne Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2007. The shares represented by this Proxy will be voted as specified on the reverse side. IF NO DIRECTION IS GIVEN IN THE SPACE PROVIDED ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF THE NOMINEES SPECIFIED ON THE REVERSE SIDE AND “FOR” THE APPROVAL OF THE DIRECTORS’ DEFERRED COMPENSATION PLAN. SEE REVERSE (Continued and to be dated and signedIf no direction is given in the space provided on the reverse side.) SEE REVERSE SIDE. SIDE.side, this proxy will be voted “FOR” the election of the nominees specified on the reverse side and “FOR” the ratification of the appointment of Ernst & Young LLP as PolyOne Corporation’s independent registered public accounting firm for the fiscal year ending December 31, 2007.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
