UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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POLYONE CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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NOTICE OF 20142017
ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
PolyOne Corporation
PolyOne Corporation
April 3, 2014
March 31, 2017
Dear Fellow Shareholder:
You are cordially invited to attend the PolyOne Corporation Annual Meeting of Shareholders (the “Annual Meeting”), which will be held at 9:00 a.m. on Thursday, May 15, 2014,11, 2017, at PolyOne Corporation’s corporate headquarters located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012.
A Notice of the 2017 Annual Meeting of Shareholders, a proxy summary and the Proxy Statement follows. Please review this material for information concerning the business to be conducted at the Annual Meeting and the nominees for election as Directors.to our Board of Directors (the “Board”).
You will also find enclosed a proxy and/or voting instruction card and an envelope in which to return the card. Whether or not you plan to attend the Annual Meeting, please complete, sign, date and return your enclosed proxy and/or voting instruction card, or vote by telephone or over the Internet as soon as possible so that your shares can be voted at the meeting in accordance with your instructions.Your vote is very important.You may, of course, withdraw your proxy and change your vote prior to or at the Annual Meeting by following the steps described in the Proxy Statement.
I appreciate the strong support of our shareholders over the years and look forward to seeing you at the meeting.
Sincerely,
Robert M. Patterson Chairman, President and Chief Executive Officer PolyOne Corporation |
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Please refer to the accompanying materials for voting instructions.
NOTICE OF 2014
ANNUAL MEETING OF SHAREHOLDERS
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April 3, 2014
The Annual Meeting of Shareholders of PolyOne Corporation will be held at PolyOne Corporation’s corporate headquarters located at NOTICE OF 2017 ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 11, 2017
9:00 a.m. Eastern Standard Time
PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012 at 9:00 a.m. on Thursday, May 15, 2014.
We are pleased to invite you to join our Board, senior leadership and other associates of PolyOne Corporation (“PolyOne” or the “Company”) for the Annual Meeting. The purposes of the meetingAnnual Meeting are to:
1. | Elect |
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3. | Approve, on an advisory basis, the frequency of future advisory votes to approve our Named Executive Officer compensation; |
4. | Approve the PolyOne Corporation 2017 Equity and Incentive Compensation Plan; |
5. | Ratify the appointment of Ernst & Young LLP as |
Consider and transact any other business that may properly come before the |
You are eligible to vote if you were a shareholderThe Board set March 14, 2017 as the record date for the Annual Meeting and owners of record atof shares of common stock of PolyOne as of the close of business on March 18, 2014. that date are eligible to:
· | Receive this notice of the Annual Meeting; and |
· | Vote at the Annual Meeting and any adjournments or postponements of the Annual Meeting. |
Please ensure that your shares are represented at the meetingAnnual Meeting by promptly voting and submitting your proxy by telephone or over the internet,Internet, or by completing, signing, dating and returning your proxy form in the enclosed envelope.
March 31, 2017 | For the Board of Directors Lisa K. Kunkle Secretary and General Counsel |
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Annual Meeting to be held on May 11, 2017: The proxy statement, proxy card and December 31, 2016 are available at our Internet website,www.polyone.com, on the “Investor Relations” page. |
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Shareholders to be held on May 15, 2014:
The proxy statement, proxy card and annual report to shareholders for the fiscal year ended December 31, 2013 are available at our internet website, www.polyone.com, on the “Investors Relations” page.
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PROXY STATEMENT SUMMARY
Proxy Statement Summary
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
PolyOne 2014VOTING AND MEETING INFORMATION
Your vote is important to the future of the Company. Please carefully review the proxy materials for the Annual Meeting, which will be held on Thursday, May 11, 2017 Eastern Standard Time at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012. Follow the instructions below to cast your vote on all of Shareholdersthe voting matters.
We are mailing this proxy statement and the enclosed proxy card and, if applicable, the voting instruction card, to shareholders on or about March 31, 2017. Our telephone number is(440) 930-1000.
Who is Eligible to Vote
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Voting. Shareholders asYou are entitled to vote if you were a shareholder of record at the close of business on March 14, 2017, the record date March 18, 2014, are entitled to vote.for the Annual Meeting. Each share of common stock is entitled to one vote for each Board of Director nominee and one vote for each of the other proposals to be voted on.
Advance Voting Methods
Even if you plan to attend our Annual Meeting in person, if you are a registered holder, please cast your vote as soon as possible using one of the following advance methods: Visitwww.proxyvote.com to vote your proxyOVER THE INTERNET until 11:59 p.m. (ET) on May 10, 2017. Call1-800-690-6903 to vote your proxyBY TELEPHONE until 11:59 p.m. (ET) on May 10, 2017. Sign, date and return your proxy card/voting instruction form to voteBY MAIL.
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Each shareholder’s vote is important. Please complete, sign, date and return your proxy or voting instruction form, or submit your vote and proxy by telephone or over the
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Meeting AgendaAttending and Voting Recommendations:at the Annual Meeting
All registered holders may vote in person at the Annual Meeting. Beneficial owners may vote in person at the meeting if they have a legal proxy. |
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PROXY STATEMENT SUMMARY
Summary of Board of Directors Nominees
The following table provides summary information as of the date of this proxy statement about each Board of Directors nominee. Detailed information regarding each nominee is found under Proposal 1 – Election of Board of Directors beginning on page 2 of this proxy statement.
Name | Age | Director Since | Principal Occupationd | Inde pen dent | Committee Memberships | |||||||||||||||||||||||
AC | CC(1) | EH& SC(1) | N& GC(1) | |||||||||||||||||||||||||
Richard H. Fearon | 58 | 2004 | Vice Chairman & Chief Financial and Planning Officer, Eaton | X | C | X | ||||||||||||||||||||||
Gregory J. Goff | 57 | 2011 | President & CEO, Tesoro | X | X | X | ||||||||||||||||||||||
Gordon D. Harnett | 71 | 1997 | Retired Chairman, President & CEO, Materion Corp. (formerly known as Brush Engineered Materials) | X | X | C | ||||||||||||||||||||||
Sandra B. Lin | 56 | 2013 | Retired President, CEO and Director, Calisolar (now Silicor Materials) | X | X | X | ||||||||||||||||||||||
Richard A. Lorraine | 68 | 2008 | Retired SVP & CFO, Eastman Chemical | X | X | X | ||||||||||||||||||||||
Stephen D. Newlin(2) | 61 | 2006 | Chairman, President & CEO, PolyOne | X | ||||||||||||||||||||||||
Robert M. Patterson(2) | 41 | N/A | Executive Vice President and COO, PolyOne | |||||||||||||||||||||||||
William H. Powell | 68 | 2008 | Retired Chairman & CEO, National Starch and Chemical Company | X | X | C | ||||||||||||||||||||||
Kerry J. Preete | 53 | 2013 | Executive Vice President, Global Strategy, Monsanto | X | X | X | ||||||||||||||||||||||
Farah M. Walters | 69 | 1998 | President & CEO, QualHealth, LLC | X | X | X | ||||||||||||||||||||||
William A. Wulfsohn | 52 | 2011 | President & CEO, Carpenter Technology | X | X | |||||||||||||||||||||||
2013 Meetings | 9 | 6 | 2 | 3 |
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PROXY STATEMENT SUMMARY
2013 Performance Highlights
The Board believes that Mr. Newlin and the other Named Executive Officers (as that term is defined in this proxy statement) have performed well in a challenging global environment, and that their compensation is commensurate with this performance.
Financial Performance. In a year marked by continued uncertainty in the global economy, PolyOne Corporation (“PolyOne” or “Company”) delivered strong operating income and revenue growth, and realized further gains from our specialty platform, which accounts for a significant portion of our Company adjusted operating income. We will work to continue this growth trend as we focus on more specialty end-uses in markets such as automotive, consumer, packaging and healthcare. Additional 2013 Company financial performance highlights included:
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PROXY SUMMARY
Company Operating Performance
PolyOne again delivered earnings growth in 2016, driven by record-setting performances from our Specialty Engineered Materials (“SEM”), Performance Products and Solutions (“PPS”) and Distribution segments. Strong performance in these segments helped to overcome several headwinds, including: lower selling prices in Distribution and PPS due to hydro-carbon based raw material deflation; unfavorable foreign exchange; a decline in demand in certain industries, such as oil and gas, heavy truck and agriculture; and weaker performance by our Designed Structures and Solutions (“DSS”) business. Additional 2016 Company financial performance highlights include(1):
· | Full year 2016 earnings per share increased to $1.95 in 2016, compared to $1.63 in 2015. | |||
· | Adjusted earnings per share |
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· | Record performance in our SEM, PPS and Distribution segments, which delivered operating income of $81.1 million, $74.4 million and $68.2 million, respectively, in 2016. |
· | Continued to invest for growth, including increasing commercial resources by 6% and investing $55 million in research & development. We also expanded our specialty solutions portfolio through several highly innovative acquisitions. | |
· | Increased our dividend 12.5% to $0.135 per quarter, representing the sixth consecutive year of increases and a 238% increase from when we initiated quarterly dividends in 2011. | |
· | Strong balance sheet and free cash flow, as total cash and liquidity ended the year at $227 million and $613 million, respectively. Since 2011, we have returned nearly $850 million to shareholders through dividend and share repurchases. |
(1) | Adjusted earnings per share reported in this proxy statement differs from what is reported under United States Generally Accepted Accounting Principles (“GAAP”). See Appendix A for an explanation of management’s use ofnon-GAAP financial measures and a reconciliation ofnon-GAAP financial measures to our results as reported under GAAP. |
Share Appreciation
Our Company has delivered a positive return to shareholders over time that significantly outperforms our peer group, as reflected below.
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Note: Adjusted earnings per share
PROXY SUMMARY
Impact of Our Performance on Named Executive Officer 2016 Compensation
Our 2016 compensation reflected our objectivepay-for-performance philosophy of aligning executive compensation directly with our financial performance.
Annual Incentive Plan
We set aggressive goals for each of our performance measures in our 2016 annual cash incentive program (the “2016 Annual Incentive Program”) under the PolyOne Corporation Senior Executive Annual Incentive Plan, as amended and restated (the “Annual Plan”). Our operational performance in 2016 resulted in the executive officers named in the 2016 Summary Compensation Table of this proxy statement (the “Named Executive Officers”) earning a below target payout, with the exception of a portion of Mr. Garratt’s payout which was above target, under the 2016 Annual Incentive Program as noted below.
Mr. Patterson’s and Mr. Richardson’s 2016 Annual Incentive Program opportunities were based on consolidated results. Mr. Van Hulle and Mr. Nikrant’s 2016 Annual Incentive Program opportunities were based on business unit-specific results and, while the adjusted operating income performance goals for such opportunities were weighted 60% overall, the opportunities were basedtwo-thirds on business unit-specific results andone-third on consolidated PolyOne differadjusted operating income results. Mr. Garratt’s metrics changed during the year from what is reportedPPS metrics to consolidated PolyOne metrics and, as a result, his 2016 Annual Incentive Program payout was prorated based on his earnings under United States generally accepted accounting principles (“GAAP”). See Appendix Aeach respective metric.
The following table shows, for each Named Executive Officer other than Mr. Newlin, the target 2016 Annual Incentive Program payout opportunity, the percentage of such payout opportunity earned based on 2016 performance, and the dollar value of the ultimate payout.
2016 Annual Incentive Program Payouts | ||||||||
Named Executive Officer | 2016 Target Opportunity ($) | Payout % | Payout ($) | |||||
Mr. Patterson | $1,048,269 | 63.3% | $663,869 | |||||
Mr. Richardson | $363,250 | 63.3% | $230,046 | |||||
Mr. Van Hulle | $247,712 | 37.8% | $93,709 | |||||
Mr. Garratt | $218,096 | 80.6% | $175,766 | |||||
Mr. Nikrant | $224,654 | 41.1% | $92,355 |
Mr. Newlin was not eligible for a reconciliationpayout under the 2016 Annual Incentive Program per the terms of non-GAAP financial measures to our results as reported under GAAP.his Letter Agreement (which is described in the “Employment Agreement with Named Executive Officer” section of this proxy statement).
Executive Compensation Results HighlightsLong-Term Incentive Program
Our compensation decisions reflectAs a balanced and responsible pay approach. The Compensation Committee has responsibility for oversightresult of PolyOne’s executive compensation programs and works with senior management to align pay with performance. Within that framework,strong earnings growth measured over the Compensation Committee and management design executive compensation programs that reward responsible risk-taking. Our executive compensation programs reflectpast three years, in 2016 the belief that the amount earned by our executives must, to a significant extent, depend on achieving rigorous Company and business unit performance objectives designed to enhance shareholder value.
The Named Executive Officers earned a 173.8% payout under our Annual Plan and, as a result of strong performance over the past three years, they also earned a 200%149% cash-settled performance unit payout under PolyOne’s 2011 - 2013 Long-Termthe Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan.Plan (the “Long-Term Incentive Plan”). The chart below sets forth certain key financial results that were used in determining payouts under our 2013 incentive compensation plans (dollar amounts are in millions).payout was earned by PolyOne exceeding adjusted earnings per share targets over four, equally-weighted performance periods as noted below.
2014 – 2016 Cash-Settled Performance Units
Performance Measure: Adjusted Earnings Per Share | ||||||||||
Performance Periods | Weighting | Target | Result | Payout % | ||||||
January 1, 2014 – December 31, 2014 | 25% | $1.51 | $1.80 | 200% | . | |||||
January 1, 2015 – December 31, 2015 | 25% | $1.74 | $1.96 | 146% | ||||||
January 1, 2016 – December 31, 2016 | 25% | $2.03 | $2.13 | 111% | ||||||
January 1, 2014 – December 31, 2016 | 25% | $5.28 | $5.89 | 139% | ||||||
Total Attainment | 149% |
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PROXY STATEMENT SUMMARY
Annual Plan | Measure | Weighting | 2013 Targets | 2013 Results | Payout % | |||||
Adjusted Operating Income | 50% | $239.3 | $272.5 | 194.9% | ||||||
Working Capital as a % of Sales | 25% | 10.5% | 10.0% | 191.4% | ||||||
Revenue | 25% | $3,773.4 | $3,827.8 | 113.9% | ||||||
Total Company Annual Plan Attainment | 173.8% | |||||||||
Long-Term Incentive Plan: Cash-Settled Performance Units | Measure | Weighting | 2011-2013 Target | 2011-2013 Result | Payout % | |||||
Cumulative Adjusted Earnings PerShare (2011-2013 performance period) | 100% | $2.79 | $3.65 | 200% |
All financial measures (Targets(targets and Results) reported inresults) with respect to the incentives described above table were calculated with adjustments for acquisitions, divestitures and special items pursuant to the terms of the plans2016 Annual Incentive Program and 2014 - 2016 long-term incentive program (the “2014-2016 Long-Term Incentive Program”) and as approved by the Board of Directors.Board.
For information on the terms and conditions of these incentive plans,programs, see the “Analysis“What We Pay and Why: Elements of 2013 Compensation Decisions and Actions”Compensation” section of this proxy statement.
Executive Compensation Program Highlights
Our executive compensation program is designed to achieve the following key objectives:
Some of the compensation best practices we employ to achieve these goals include:
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PROXY STATEMENT
POLYONE CORPORATION
PolyOne Center
33587 Walker Road
Avon Lake, Ohio 44012
PROXY STATEMENT
Dated April 3, 2014March 31, 2017
Our Board of Directors respectfully requests your proxy for use at the Annual Meeting of Shareholders to be held at PolyOne’s corporate headquarters located at PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012 at 9:00 a.m. on Thursday, May 15, 2014,11, 2017, 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 or vote by telephone or internetover the Internet as described below. Common shares represented by a properly signed proxy card will be voted in accordance with the choices marked on the card. If no choices are marked, the shares will be votedvoted: (1) to elect the nominees listed on pages 3 through 6in the “Proposal 1 – Election of Board of Directors” section of this proxy statement,statement; (2) to approve, by non-binding vote,on an advisory basis, our named executive officers’ compensation forNamed Executive Officer compensation; (3) to approve, on an advisory basis, the fiscal year ended December 31, 2013frequency of future advisory votes to approve our Named Executive Officer compensation; (4) to approve the PolyOne Corporation 2017 Equity and (3)Incentive Compensation Plan; and (5) to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014. 2017.
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 plans will receive a separate voting instruction card: The PolyOne Retirement Savings Plan and the PolyOne Canada Inc. Retirement Savings Program.Program will receive a separate voting instruction card. 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 respective 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.
ShareholdersYou may also submit their proxiesyour proxy 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 3, 2014. Our telephone number is (440) 930-1000.
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GOVERNANCEELECTION OF BOARD OF DIRECTORS
PROPOSAL 1 — ELECTION OF BOARD OF DIRECTORS
Our Board of Directors currently consists of 11 Directors. Pursuant to the Director retirement policy contained in our Corporate Governance Guidelines, Dr. CartwrightFarah M. Walters will not be nominated forre-election at our Annual Meeting of shareholders. Following ourMeeting. Thus, following the Annual Meeting and, assuming the election of all of the Board’sBoard nominees, our Board will consist of 11 Directors because Robert M. Patterson, our Executive Vice President and COO who is not currently a Director, has been nominated by the Board to stand for election at the Annual Meeting. ten Directors.
Each Director serves for aone-year term until a successor is duly elected and qualified, subject to the Director’s earlier death, retirement or resignation. Our Corporate Governance Guidelines provide that allnon-employee Directors will retire from the Board not later than the annual meeting of shareholdersAnnual Meeting immediately following the Director’s 72nd birthday, although the Board may waive this limitation if it determines that such a waiver is in PolyOne’s best interests.
A shareholder who wishes to nominate a person for election as a Director must provide written notice to our Secretary in accordance with the procedures specified in Regulation 12 of our Code of Regulations (“Regulations”). Generally, the Secretary must not receive the notice 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.Annual Meeting. The notice must set forth, as to each nominee, the name, age, principal occupation and employment during the past five years, name and principal business of any corporation or other organization in which such occupation 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 our 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.
Following are the nominees for election as Directors for terms expiring in 2014,2018, a description of the business experience of each nominee and the names of other publicly-held companies for which he or she currently serves as a director or has served as a director during the past five years. Each nominee for election as Director was previously elected by our shareholders, with the exception of Kerry J. Preeteother than Kim Ann Mink. Ms. Mink was recommended to our Nominating and Robert M. Patterson. As permitted by Regulations 10(a) and 13 of our Regulations,Governance Committee for election to the Board increased its sizeby a third-party search firm, Russell Reynolds Associates. Ms. Mink was subsequently recommended by our Nominating and Governance Committee to 11 members and elected Mr. Preete to fill the resulting vacancy in December 2013. Mr. Patterson’s serviceBoard for election as a Director, would commence upon his election atand the Annual Meeting.Board elected Ms. Mink as a Director on March 8, 2017. The composition of the Board is intended to reflect an appropriate mix of skill sets, experience and qualifications that are relevant to PolyOne Corporation’s business and governance over time.
In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that the nominee should serve as a Director, the Board also believes that all of our Director nominees are individuals of substantial accomplishment with demonstrated leadership capabilities. Each of our Director nominees also has the following personal characteristics, which are required attributes for all Board nominees: high ethical standards, integrity, judgment and an ability to devote sufficient time to the affairs of our Company. The referenceinformation 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 one of our predecessors. The information is current as of March 18, 2014.14, 2017.
Our Board all the nominees listed below.
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GOVERNANCEELECTION OF BOARD OF DIRECTORS
Richard H. Fearon Lead Director of our Board since
| May 14, 2015. Vice Chairman and Chief Financial and Planning Officer of Eaton, a global manufacturing company, since February 2009. Mr. Fearon served as Executive Vice President, Chief Financial and Planning Officer of Eaton from April 2002 until February 2009. Mr. Fearon served as a Partner of Willow Place Partners LLC, a corporate advisory firm, from 2001 to 2002 and was the Senior Vice President Corporate Development for Transamerica Corporation, a financial services organization, from 1995 to 2000. | Qualifications, Attributes, Skills and Experience: We believe that Mr. Fearon’s financial expertise, experience and knowledge of international operations, knowledge of diversified companies and corporate development expertise provide him with the qualifications and skills to serve as a valued member of our Board. Mr. Fearon’s advice with respect to financial issues affecting our Company is specifically valued and utilized, especially Current Directorships: Eaton Former Directorships: Southern Steel Bhd, Centurion Industries Ltd. Age: 61 Director since: 2004 | ||||
Gregory J. Goff
| President and Chief Executive Officer since May 2010, and Chairman since December 2014, of Tesoro Corporation, a leading company in the independent refining and marketing | Qualifications, Attributes, Skills and | ||||
Current Directorships:Tesoro Corporation, Tesoro Logistics GP LLC (the general partner of Tesoro Logistics LP) Former Directorships:DCP Midstream CP, LLC Age: 60 Director
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GOVERNANCE
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ELECTION OF BOARD OF DIRECTORS
William R. Jellison Retired Vice President, Chief Financial Officer of Stryker Corporation, one of the world’s leading medical technology companies. Mr. Jellison served in this capacity from 2013 to 2016. Prior to joining Stryker, Mr. Jellison served as the Senior Vice President and Chief Financial Officer of Dentsply International, the world’s largest manufacturer of professional dental products, from 1998 to 2013, except for a roughlytwo-year period of time between 2002 and 2005 when he was a Senior Vice President with full P&L responsibilities for some of Dentsply’s operating divisions located in the U.S., Europe and Asia. Mr. Jellison began his career with the Donnelly Corporation, a publicly traded international automotive parts supplier, where he served in several senior leadership roles, advancing to Vice President of Finance. | Qualifications, Attributes, Skills and Experience: We believe that Mr. Jellison brings a unique perspective, especially with respect to opportunities to further specialize in the healthcare industry. In addition, Mr. Jellison brings substantial financial experience from a large, publicly-traded company to the Board. And, his experience abroad provides him with diverse operating experiences in international markets, which provides the Board with a meaningful global business perspective. Mr. Jellison is able to use his experience in serving as an executive at a respected medtech company to guide our Board in driving further specialization. Current Directorships: None Former Directorships: None Age: 59 Director since: 2015 | |||||||
Sandra Beach Lin Retired President, Chief Executive Officer and Director of Calisolar, Inc. (now Silicor Materials Inc.), a solar silicon | Qualifications, Attributes, Skills and Experience: We believe that Ms. Current Directorships: WESCO International, Inc.; American Electric Power Company, Inc.; and Interface Biologics Inc. Former Directorships: None Age: 59 Director since: 2013 | |||||||
Richard A. Lorraine
| Retired Senior Vice President and Chief Financial Officer of Eastman Chemical Company, a specialty chemicals company. Mr. Lorraine served in this capacity from 2003 to 2008. Mr. Lorraine also served as Executive Vice President and Chief Financial Officer of Occidental Chemical Company, a chemical manufacturing company, from 1995 to 2003. | Qualifications, Attributes, Skills and Experience: Mr. Lorraine provides our Board with the broad business perspective that he gained in extensive leadership roles in varying industries. He is particularly equipped to advise our Board and Audit Committee on financial issues affecting our Company due to his prior roles as chief financial officer. In addition, he has a significant international background andin-depth commercial experience. All of these attributes provide Mr. Lorraine with valuable skills that he shares with our Board. Current Directorships: Carus Corporation Former Directorships: None Age: 71 Director since: 2008 |
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ELECTION OF BOARD OF DIRECTORS
Kim Ann Mink Chairman, President and Chief Executive Officer, Innophos Holdings, Inc., a leading international producer of performance-critical and nutritional functional ingredients, with applications in food, health and industrial specialties markets, since 2015. Prior to joining Innophos, Dr. Mink served as Business President of Elastomers, Electrical and Telecommunications at the Dow Chemical Company, a specialty chemicals provider, from September 2012 to December 2015. She joined Dow in April 2009 as Global General Manager, Performance Materials and President and Chief Executive Officer of ANGUS Chemical Co. (then a fully-owned subsidiary of Dow Chemical). Prior to joining Dow, she was Corporate Vice President and Global General Manager, Ion Exchange Resins at the Rohm and Haas Company (now a fully-owned subsidiary of Dow), where she spent more than 20 years serving in numerous senior roles with increasing responsibilities. | Qualifications, Attributes, Skills and Experience: As our newest Board member, we believe Dr. Mink provides us with valuable counsel related to her chemical and advanced materials background. Further, her experience as a Chief Executive Officer of a public company provides PolyOne with a diverse perspective when forming strategies to guide the direction of our Company. PolyOne also benefits from her experience and expertise in technology and varied end markets. Current Directorships: Innophos Holdings, Inc. Former Directorships: None Age: 57 Director since: 2017 | |||||
Robert M. Patterson Chairman, President and Chief Executive Officer of PolyOne since |
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GOVERNANCE
| Executive Vice President and Chief Operating Officer | Qualifications, Attributes, Skills and Current Directorships: None Former Directorships: None Age: 44 Director since: 2014 | ||||||
William H. Powell
| Retired Chairman and Chief Executive Officer of National Starch and Chemical Company, a specialty chemicals company. Mr. Powell served in this capacity from 1999 until his retirement in 2006. | Qualifications, Attributes, Skills and Current Directorships: Granite Construction Incorporated; FMC Corporation Former Directorships: Arch Chemicals, Inc. (2007-2011) Age: 71 Director since: 2008 |
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ELECTION OF BOARD OF DIRECTORS
Kerry J. Preete
| Executive Vice President, | Qualifications, Attributes, Skills and |
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GOVERNANCE
Former Directorships: None Age: 56 Director
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William A. Wulfsohn
Chairman and Chief Executive Officer of Ashland Global Holdings Inc., a global leader in providing specialty chemical solutions to customers in a wide range of customer and industrial markets, since
| January 2015. He is alsoNon-Executive Chairman of Valvoline Inc., a majority-owned subsidiary of Ashland Global Holdings and a leading worldwide producer and distributer of premium-branded automotive, commercial and industrial lubricants and automotive chemicals, since September 2016. From July 2010 until December 2014, Mr. Wulfsohn was President and Chief Executive Officer of Carpenter Technology Corporation, | Qualifications, Attributes, Skills and Current Directorships: Ashland Global Holdings Inc.; Valvoline, Inc. (a majority-owned subsidiary of Ashland Global Holdings, Inc.) Former Directorships: Carpenter Technology Corporation Age: 55 Director since: 2011 |
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GOVERNANCEADVISORY VOTE
PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and Section 14A of the Exchange Act, our Board is submitting a “Say on Pay” proposal for shareholder consideration. While the vote on Named Executive Officer compensation isnon-binding and solely advisory in nature, our Board and the Compensation Committee will review the voting results. If there are a significant number of negative votes, we will seek to understand the concerns that influenced the vote and expect to address them in making future decisions about our executive compensation programs.
Advisory “Say on Pay” votes have been scheduled to be held once every year. At this year’s meeting, shareholders will also be voting, on an advisory basis, on the future frequency of the Say on Pay vote. Our Board is recommending that the Say on Pay vote occur every year. Thus, it is anticipated that the next Say on Pay vote will occur at our 2018 Annual Meeting.
As described more fully in the “Compensation Discussion and Analysis” section of this proxy statement, the Compensation Committee of our Board has structured our executive compensation program to achieve the following key objectives:
Objective | How Our Executive Compensation Program Achieves This Objective | |
Attract, Motivate and Help Retain Management | Competing effectively to attract, motivate and help retain a management team that leads in setting and achieving the overall goals and objectives of PolyOne | |
Pay-For-Performance | Setting a significant portion of each Named Executive Officer’s total compensation in the form of variable compensation that is earned whenpre-established financial performance goals are achieved | |
Align Executive Compensation with Shareholders’ Interests | Focusing incentive programs on the critical performance measures that determine PolyOne’s overall success and reward executives for the attainment of short-term results, balanced with the need for sustainable long-term success |
We urge shareholders to read the “Compensation Discussion and Analysis” section of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives. We also encourage you to review the 2016 Summary Compensation Table and other related compensation tables and narratives in the “Executive Compensation” section of this proxy statement, which provide detailed information regarding the compensation of our Named Executive Officers. The Board and the Compensation Committee believe that the policies and procedures described and explained in the “Compensation Discussion and Analysis” section of this proxy statement are effective in achieving our business goals and the compensation of our Named Executive Officers reported in the “Executive Compensation” section of this proxy statement has supported and contributed to the Company’s recent and long-term success.
Our Board recommends a vote FOR Proposal 2 to approve, on an advisory basis, our Named Executive Officer compensation. |
We believe you should vote “FOR” our Named Executive Officer compensation program and approve the following resolution because the compensation actually earned by our Named Executive Officers for our 2016 performance was aligned with ourpay-for-performance objectives, our Company’s performance and shareholder interests:
“RESOLVED, that the compensation paid to PolyOne’s Named Executive Officers, as disclosed pursuant to Item 402of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, is hereby APPROVED.”
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FREQUENCY ADVISORY VOTE
PROPOSAL 3 — ADVISORY VOTE TO APPROVE THE FREQUENCY OF FUTURE ADVISORY VOTES TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
As required under the Dodd-Frank Act and Section 14A of the Exchange Act, we are also asking you this year to cast anon-binding, advisory vote to indicate whether you prefer that future Say on Pay votes occur “EVERY YEAR,” “EVERY TWO YEARS” or “EVERY THREE YEARS,” or you may abstain from voting on this matter.
After careful consideration, the Board recommends that the Say on Pay vote occur every year as a corporate governance best practice. Although the Company has designed its executive compensation program to align the economic interests of our executives with the long-term interests of the Company and our shareholders, the Board recognizes that executive compensation is disclosed annually and it values regular shareholder feedback on the Company’s compensation programs. Therefore, our Board recommends that you vote for an annual Say on Pay vote, for the reasons stated below.
This advisory vote, commonly known as a “frequency” vote, gives you the opportunity to express your views about how frequently (but at least once every three years) we should conduct future Say on Pay votes. You may vote for future Say on Pay votes to be held “EVERY YEAR,” “EVERY TWO YEARS” or “EVERY THREE YEARS,” or abstain from voting on this proposal. You are not voting to approve or disapprove the Board’s recommendation. The results of the frequency vote will be advisory and will not be binding upon the Company or the Board. However, the Company and the Board will take into account the outcome of the frequency vote when determining how frequently the Company will conduct future Say on Pay votes, and the Company will disclose its frequency decision as required by the Securities and Exchange Commission (the “SEC”).
After careful consideration, our Board has determined that holding future Say on Pay votes every year is the most appropriate policy for the Company at this time, and recommends that shareholders vote for future Say on Pay votes to occur every year. While the Company’s executive compensation programs are designed to promote a long-term connection between pay and performance, our Board recognizes that executive compensation disclosures are made annually. Holding annual Say on Pay votes provides the Company with more direct and immediate feedback on our compensation disclosures. However, shareholders should note that because each Say on Pay vote occurs well after the beginning of the compensation year, and because the different elements of our executive compensation programs are designed to operate in an integrated manner and to complement one another, in many cases it may not be appropriate or feasible to change our executive compensation programs in consideration of any one year’s Say on Pay vote by the time of the following year’s annual meeting of shareholders. We believe that annual Say on Pay votes are consistent with our practice of seeking input and engaging in dialogue with our shareholders on corporate governance matters and our executive compensation philosophy, policies and practices.
Our Board recommends a vote for EVERY YEAR on Proposal 3 regarding the frequency of future advisory votes to approve Named Executive Officer compensation. |
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EQUITY PLAN
PROPOSAL 4 — APPROVAL OF THE POLYONE CORPORATION 2017 EQUITY AND INCENTIVE COMPENSATION PLAN
General
We are asking shareholders to approve the PolyOne Corporation 2017 Equity and Incentive Compensation Plan (the “2017 Plan”). On March 10, 2017, the Board unanimously approved and adopted, subject to the approval of the Company’s shareholders at the Annual Meeting, the 2017 Plan to replace our current equity plan, the Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan (the “2010 Plan”). Our shareholders first approved the 2010 Plan at the Company’s 2010 Annual Meeting of Shareholders (the “Original 2010 Plan”). At the Company’s 2012 Annual Meeting of Shareholders, our shareholders approved an amendment to the Original 2010 Plan to increase the number of shares authorized for issuance under the Original 2010 Plan by 2,000,000 shares and increase certain other numerical common share limits contained in the Original 2010 Plan. At the Company’s 2015 Annual Meeting of Shareholders, our shareholders approved the 2010 Plan to, among other things, increase the maximum number of shares available for awards by 1,200,000 shares andre-approve the material terms for “qualified performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
The Board is recommending that the Company’s shareholders vote in favor of the 2017 Plan, which will succeed in its entirety the 2010 Plan. The 2017 Plan will continue to afford the Compensation Committee the ability to design compensatory awards that are responsive to the Company’s needs and includes authorization for a variety of awards designed to advance the interests and long-term success of the Company by encouraging stock ownership among officers and other key employees of the Company and its subsidiaries,non-employee Directors of the Company, and certainnon-employees who provide employee-type services.
If the 2017 Plan is approved by shareholders, it will be effective as of the day of the Annual Meeting, and no further grants will be made on or after such date under the 2010 Plan. Outstanding awards under the 2010 Plan, however, will continue in effect in accordance with their terms. If the 2017 Plan is not approved by our shareholders, no awards will be made under the 2017 Plan, the 2010 Plan will remain in effect, and our ability to grant certain performance-based awards may be limited.
Our principal reason for adopting the 2017 Plan is to obtain shareholder approval of the shares of our common stock, par value $0.01 per share (“Common Shares”), available for awards under the 2017 Plan. Shareholder approval of the 2017 Plan is also intended to constitute approval of the material terms for “qualified performance-based compensation” under the 2017 Plan for purposes of Section 162(m) of the Code. Section 162(m) of the Code generally disallows a deduction for certain compensation paid to our Chief Executive Officer and certain other executive officers in a taxable year to the extent that compensation to any such covered employee exceeds $1 million for such year. However, some types of compensation, including “qualified performance-based compensation” under Section 162(m) of the Code, are not subject to the deduction limit if the compensation satisfies the requirements of Section 162(m) of the Code. The deduction limit does not apply to compensation paid under a shareholder approved plan that meets certain requirements for “qualified performance-based compensation” under Section 162(m) of the Code. While we believe it is in the best interests of the Company and our shareholders to have the ability to potentially grant “qualified performance-based compensation” under Section 162(m) of the Code under the 2017 Plan, we may decide to grant compensation to covered employees that will not qualify as “qualified performance-based compensation” for purposes of Section 162(m) of the Code. Moreover, even if we intend to grant compensation that qualifies as “qualified performance-based compensation” for purposes of Section 162(m) of the Code under the 2017 Plan, we cannot guarantee that such compensation will so qualify or ultimately will be deductible by us.
Generally, compensation attributable to stock options, appreciation rights and other performance-based awards may be deemed to qualify as “qualified performance-based compensation” under Section 162(m) of the Code if: (1) the grant is made by a committee of outside directors for purposes of Section 162(m) of the Code; (2) the plan under which the award is granted states the maximum number of shares with respect to which share-based awards and the maximum amount of cash awards that may be granted to any individual during a specified period of time; and (3) the amount of compensation an individual may receive under the awards is based solely on the achievement of one or morepre-established performance goals which incorporate business criteria approved by shareholders (or, in the
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EQUITY PLAN
case of stock options or appreciation rights, the increase in the value of the shares after the date of grant). Shareholder approval of this proposal is intended to satisfy the shareholder approval requirements under Section 162(m) of the Code.
We are seeking shareholder approval of the material terms for “qualified performance-based compensation” under the 2017 Plan, including the performance measures and applicable individual grant limits under the 2017 Plan, as well as the individuals eligible to receive awards under the 2017 Plan, to have the flexibility to potentially grant awards under the 2017 Plan that may be deductible for federal income tax purposes. If our shareholders approve the material terms for “qualified performance-based compensation” under the 2017 Plan, assuming that all other Section 162(m) requirements are met, we may be able to obtain tax deductions with respect to awards issued under the 2017 Plan to our Section 162(m) executive officers without regard to the limitations of Section 162(m) through the 2022 Annual Meeting of Shareholders (in other words, for about five years).
The actual text of the 2017 Plan is attached to this proxy statement asAppendix B. The following description of the 2017 Plan is only a summary of its principal terms and provisions and is qualified by reference to the actual text as set forth inAppendix B.
Why We Recommend That You Vote for this Proposal
The 2017 Plan authorizes the Compensation Committee to provide equity-based compensation in the form of stock options, appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance units, dividend equivalents and certain other awards denominated or payable in, or otherwise based on, Common Shares or factors that may influence the value of our shares, plus cash incentive awards, for the purpose of attracting and retainingnon-employee Directors and officers and other key employees and service providers of the Company and its subsidiaries, and to provide to such persons incentives and rewards for service or performance. Some of the key features of the 2017 Plan that reflect our commitment to effective management of equity and incentive compensation are set forth below in this subsection.
We believe our future success depends in part on our ability to attract, motivate and retain high quality employees and Directors and that the ability to provide equity-based and incentive-based awards under the 2017 Plan is critical to achieving this success. We would be at a severe competitive disadvantage if we could not use share-based awards to recruit and compensate our employees and Directors.
The use of Common Shares as part of our compensation program is also important to our continued success because equity-based awards are an essential component of our compensation program for key employees, as they link compensation with long-term shareholder value creation and reward participants based on the Company’s performance. As discussed in further detail in the “Compensation Discussion and Analysis”, equity compensation represents a significant portion of the compensation package for our Chief Executive Officer and other named executive officers. Because our equity awards generally vest over multiple years, the value ultimately realized from these awards depends on the long-term value of our Common Shares. Our equity compensation program also helps us to attract and retain talent, targeting individuals who are motivated bypay-for-performance.
As of March 1, 2017, 940,126 Common Shares remained available for issuance under the 2010 Plan. If the 2017 Plan is not approved, we may be compelled to increase significantly the cash component of our employee and Director compensation, which may not necessarily align employee and Director compensation interests with the investment interests of our shareholders as well as alignment provided by equity-based awards.
The following includes aggregated information regarding our view of the overhang and dilution associated with the 2010 Plan and the potential shareholder dilution that would result if our proposed share authorization under the 2017 Plan is approved. The information below is as of March 1, 2017. As of that date, there were approximately 82,810,040 Common Shares outstanding:
Under the 2010 Plan:
· | Outstanding full-value awards (RSUs and performance shares – assuming maximum performance): 666,555 Common Shares (approximately 0.8% of our outstanding Common Shares); |
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EQUITY PLAN
· | Outstanding stock options and SARs: 2,096,611 Common Shares (approximately 2.5% of our outstanding Common Shares) (outstanding stock options and SARs have an average exercise price of $30.05 and an average remaining term of 8 years); |
· | Total Common Shares subject to outstanding awards as described above (full-value awards, stock options and SARs): 2,763,166 Common Shares (approximately 3.3% of our outstanding Common Shares); |
· | Total Common Shares currently available for future awards under the 2010 Plan: 940,126 Common Shares (approximately 1.0% of our outstanding Common Shares); and |
· | The total number of Common Shares subject to outstanding awards (2,763,166 Common Shares), plus the total number of Common Shares available for future awards under the 2010 Plan (940,126 Common Shares), represents a current overhang percentage of 4.5%(potential dilution of our shareholders represented by the 2010 Plan). |
Under the 2017 Plan:
· | Proposed Common Shares available for awards under the 2017 Plan: Our new share request is for a total of 2,500,000 Common Shares. This would encompass the 940,126 Common Shares remaining available under the 2010 Plan and an additional 1,559,874 Common Shares. Any grants made from March 1, 2017 until the Annual Meeting of Shareholders (when this 2017 Plan is considered for approval) would be deducted from the request for additional shares. This request for shares represents about 3.0% of our outstanding Common Shares - this percentage reflects the dilution of our shareholders that would occur if the 2017 Plan is approved. Of the 2,500,000 Common Shares requested, no more than 1,000,000 would be granted as full value awards. |
Total potential overhang or dilution under the 2017 Plan:
· | The total Common Shares subject to outstanding awards as of March 1, 2017 (2,763,166 Common Shares), plus the proposed Common Shares available for awards under the 2017 Plan (2,500,000 Common Shares), represent a total overhang of 5,263,166 shares (6.4%) under the 2017 Plan. |
Based on the closing price on the New York Stock Exchange for our Common Shares on March 1, 2017 of $34.07 per share, the aggregate market value as of March 1, 2017 of the 2,500,000 Common Shares requested under the 2017 Plan was $85,175,000.
In fiscal years 2014, 2015 and 2016, we granted awards under the 2010 Plan covering 682,527 Common Shares, 478,080 Common Shares, and 650,890 Common Shares, respectively. Based on our basic weighted average of Common Shares outstanding for those three years of 89,338,258, 85,288,731, and 82,688,751, respectively, for the three-fiscal-year period 2014-2016, our average burn rate, not taking into account forfeitures, was 0.70% (our individual years’ burn rates were 0.76% for fiscal 2014, 0.56% for fiscal 2015, and 0.79% for fiscal 2016).
In determining the number of shares to request for approval under the 2017 Plan, our management team worked with our proxy solicitor and consultant and the Compensation Committee to evaluate a number of factors including our recent share usage and criteria expected to be utilized by institutional proxy advisory firms in evaluating our proposal for the 2017 Plan.
If the 2017 Plan is approved, we intend to utilize the shares authorized under the 2017 Plan to continue our practice of incentivizing key individuals through equity grants. We currently anticipate that the shares requested in connection with the approval of the 2017 Plan will last for about three years, based on our historic grant rates and the approximate current share price, but could last for a shorter period of time if actual practice does not match historic rates or our share price changes materially. As noted in “Summary of Material Terms of the 2017 Plan,” our Compensation Committee would retain full discretion under the 2017 Plan to determine the number and amount of awards to be granted under the 2017 Plan, subject to the terms of the 2017 Plan, and future benefits that may be received by participants under the 2017 Plan are not determinable at this time.
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EQUITY PLAN
We believe that we have demonstrated a commitment to sound equity compensation practices in recent years. We recognize that equity compensation awards dilute shareholders’ equity, so we have carefully managed our equity incentive compensation. Our equity compensation practices are intended to be competitive and consistent with market practices, and we believe our historical share usage has been responsible and mindful of shareholder interests, as described above.
In evaluating this proposal, shareholders should consider all of the information in this proposal.
Our Board recommends a vote FOR Proposal 4 to approve the PolyOne Corporation 2017 Equity and Incentive Compensation Plan. |
2017 Plan Highlights
Administration. The 2017 Plan will generally be administered by the Compensation Committee.
Reasonable 2017 Plan Limits. Subject to adjustment as described in the 2017 Plan, total awards under the 2017 Plan are limited to 2,500,000 shares, (1) minus, as of the effective date of the 2017 Plan, one share for every one share subject to an award granted under the 2010 Plan between March 1, 2017 and the effective date, and (2) plus any shares made available under the 2017 Plan as described below in the “Share Counting” subsection. These shares may be shares of original issuance or treasury shares or a combination of the two.
The 2017 Plan also provides that, subject to adjustment as described in the 2017 Plan:
● | the aggregate number of Common Shares actually issued or transferred upon the exercise of Incentive Stock Options (as defined below) will not exceed 2,500,000Common Shares; |
● | the aggregate number of Common Shares subject to awards of restricted stock, RSUs, performance shares, performance units, awards tonon-employee Directors (other than stock options or SARs) and Other Awards (as defined below) (after taking into account any forfeitures and cancellations) will not, during the life of the 2017 Plan, exceed 1,000,000Common Shares; |
● | no participant will be granted stock options and/or SARs, in the aggregate, for more than 500,000 Common Shares during any calendar year, except that such limit is multiplied by two for a participant’s first calendar year of service with the Company or any subsidiary; |
● | no participant will be granted awards of restricted stock, RSUs, performance shares and/or Other Awards that are Qualified Performance-Based Awards, in the aggregate, for more than 400,000 Common Shares during any calendar year, except that such limit is multiplied by two for a participant’s first calendar year of service with the Company or any subsidiary; |
● | no participant in any calendar year will receive an award of performance units and/or other awards payable in cash (other than cash incentive awards) that are Qualified Performance-Based Awards, having an aggregate maximum value as of their respective grant dates in excess of $4,000,000, except that such limit is multiplied by two for a participant’s first calendar year of service with the Company or any subsidiary; |
● | no participant in any calendar year will receive cash incentive awards that are Qualified Performance-Based Awards having an aggregate maximum value in excess of $4,000,000, except that such limit is multiplied by two for a participant’s first calendar year of service with the Company or any subsidiary; and |
● | generally, nonon-employee Director will be granted, in any period of one calendar year, awards under the 2017 Plan having an aggregate maximum value at the date of grant (calculating the value of any such awards based on the grant date fair value for financial reporting purposes), taken together with any cash fees payable to thenon-employee Director for the calendar year, in excess of $600,000. |
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EQUITY PLAN
A “Qualified Performance-Based Award” is any cash incentive award or award of performance shares, performance units, restricted stock, RSUs, or Other Awards that is intended to satisfy the requirements for “qualified performance-based compensation” under Section 162(m) of the Code.
Allowances for Conversion Awards and Assumed Plans. Common Shares issued or transferred under awards granted under the 2017 Plan in substitution for or conversion of, or in connection with an assumption of, stock options, SARs, restricted stock, RSUs or other stock or stock-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with us or any of our subsidiaries will not count against (or be added to) the aggregate share limit or other 2017 Plan limits described above. Additionally, shares available under certain plans that we or our subsidiaries may assume in connection with corporate transactions from another entity may be available for certain awards under the 2017 Plan, under circumstances further described in the 2017 Plan, but will not count against the aggregate share limit or other 2017 Plan limits described above.
Limited Share Recycling Provisions. Subject to certain exceptions described in the 2017 Plan, if any award granted under the 2017 Plan is cancelled or forfeited, expires or is settled for cash (in whole or in part), or is unearned, the Common Shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available under the 2017 Plan. The following Common Shares will not be added (or added back, as applicable) to the aggregate share limit under the 2017 Plan: (1) Common Shares withheld by us, tendered or otherwise used in payment of the exercise price of a stock option granted under the 2017 Plan, (2) Common Shares withheld by us, tendered or otherwise used to satisfy a tax withholding obligation, and (3) Common Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of stock options granted under the 2017 Plan. Further, all Common Shares covered by SARs that are exercised and settled in shares, whether or not all Common Shares covered by the SARs are actually issued to the participant upon exercise, will not be added back to the aggregate number of shares available under the 2017 Plan. If a participant elects to give up the right to receive compensation in exchange for Common Shares based on fair market value, such Common Shares will not count against the aggregate number of shares available under the 2017 Plan.
Minimum Vesting Periods. The 2017 Plan provides that (subject to the discretionary acceleration provisions of the 2017 Plan), and except for awards under which up to an aggregate of 5% of the aggregate number of Common Shares available under the 2017 Plan may be granted:
● | Time-based restrictions on stock options, SARs, restricted stock, RSUs and Other Awards for participants other thannon-employee Directors generally may not lapse solely by the passage of time sooner than after one year, unless the Compensation Committee specifically provides for continued vesting or for those restrictions to lapse sooner, including (1) by virtue of the retirement, death or disability of a participant or (2) in the event of a Change of Control (as defined below); |
● | If restrictions on stock options, SARs, restricted stock, RSUs and Other Awards granted to participants other thannon-employee Directors lapse based upon the achievement of management objectives, the applicable performance period must be at least one year, and the performance period for performance shares, performance units and cash incentive awards must be at least one year, unless the Compensation Committee specifically provides for continued vesting, earlier lapse or modification, including (1) by virtue of the retirement, death or disability of a participant or (2) in the event of a Change of Control (subject to certaintax-related limitations); and |
● | Awards under the 2017 Plan granted tonon-employee Directors will not be subject to minimum vesting requirements. |
No Repricing Without Shareholder Approval. The repricing of options and SARs (outside of certain corporate transactions or adjustment events described in the 2017 Plan or in connection with a Change of Control) is prohibited without shareholder approval under the 2017 Plan.
Change of Control Definition. The 2017 Plan includes a definition of “Change of Control,” which is set forth below.
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EQUITY PLAN
Other Features.
● | The 2017 Plan also provides that, except with respect to certain converted, assumed or substituted awards as described in the 2017 Plan, no stock options or SARs will be granted with an exercise or base price less than the fair market value of a Common Share on the date of grant. |
● | The 2017 Plan is designed to allow awards made under the 2017 Plan to be Qualified Performance-Based Awards. |
Section 162(m)
As discussed above, one reason for submitting this proposal to shareholders is to obtain shareholder approval of the material terms for “qualified performance-based compensation” under the 2017 Plan for purposes of Section 162(m) of the Code. Such shareholder approval is expected to enable us to structure certain awards so that they may be able to qualify as “qualified performance-based compensation” under Section 162(m) of the Code.
In particular, the 2017 Plan includes a list of performance measures upon one or more of which the Compensation Committee must condition a grant or vesting of a Qualified Performance-Based Award pursuant to the 2017 Plan, which measures are as follows (including relative or growth achievement regarding such metrics):
● | Profits (e.g., operating income, EBIT, EBT, net income, earnings per share, residual or economic earnings, economic profit — these profitability metrics could be measured before certain specified special items and/or subject to GAAP definition); |
● | Cash Flow (e.g., EBITDA, free cash flow, free cash flow with or without specific capital expenditure target or range, including or excluding divestments and/or acquisitions, total cash flow, cash flow in excess of cost of capital or residual cash flow or cash flow return on investment); |
● | Returns (e.g., Profits or Cash Flow returns on: assets, invested capital, net capital employed, sales, and equity); |
● | Working Capital (e.g., working capital divided by sales, days’ sales outstanding, days’ sales inventory, and days’ sales in payables); |
● | Profit Margins (e.g., Profits divided by revenues, gross margins and material margins divided by revenues, and material margin divided by sales pounds); |
● | Liquidity Measures (e.g.,debt-to-capital,debt-to-EBITDA, total debt ratio); |
● | Sales Growth, Gross Margin Growth, Cost Initiative and Stock Price Metrics (e.g., revenues, revenue growth, revenue growth by targeted country, region or end market, gross margin and gross margin growth, material margin and material margin growth, stock price appreciation, total return to shareholders, sales and administrative costs divided by sales, and sales and administrative costs divided by profits); and |
● | Strategic Initiative Key Deliverable Metrics consisting of one or more of the following: product development, strategic partnering, research and development, vitality index, market penetration, geographic business expansion goals, cost targets, customer satisfaction, employee satisfaction, management of employment practices (including succession planning and talent development) and employee benefits, supervision of litigation and information technology, and goals or synergies relating to acquisitions or divestitures of subsidiaries, affiliates and joint ventures. |
In addition to the performance measures, the 2017 Plan also includes certain individual grant limits for equity or incentive awards that can be granted pursuant to the 2017 Plan, as further described above under the heading “2017 Plan Highlights.”
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EQUITY PLAN
Summary of Material Terms of the 2017 Plan
Administration: The 2017 Plan will generally be administered by the Compensation Committee (or its successor), or any other committee of the Board designated by the Board to administer the 2017 Plan. References to the “Committee” in this proposal refer to the Compensation Committee or such other committee designated by the Board, as applicable. The Committee may from time to time delegate all or any part of its authority under the 2017 Plan to a subcommittee. Any interpretation, construction and determination by the Committee of any provision of the 2017 Plan, or of any agreement, notification or document evidencing the grant of awards under the 2017 Plan, will be final and conclusive. To the extent permitted by applicable law, the Committee may delegate to one or more of its members or to one or more officers, or to one or more agents or advisors, such administrative duties or powers as it deems advisable. In addition, the Committee may by resolution, subject to certain restrictions set forth in the 2017 Plan, authorize one or more officers of the Company to (1) designate employees to be recipients of awards under the 2017 Plan, and (2) determine the size of such awards. However, the Committee may not delegate such responsibilities to officers for awards granted tonon-employee Directors or certain employees who are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) or subject to Section 162(m) of the Code.
Eligibility: Any person who is selected by the Committee to receive benefits under the 2017 Plan and who is at that time an officer or other key employee of the Company or any of its subsidiaries (including a person who has agreed to commence serving in such capacity within 90 days of the date of grant) is eligible to participate in the 2017 Plan. In addition, certain persons who provide services to the Company or any of its subsidiaries that are equivalent to those typically provided by an employee (provided that such persons satisfy the FormS-8 definition of “employee”), andnon-employee Directors of the Company, may also be selected by the Committee to participate in the 2017 Plan. As of March 1, 2017, there were approximately 146 employees, zero consultants, and 9non-employee Directors of the Company expected to participate in the 2017 Plan.
Shares Available for Awards under the 2017 Plan: Subject to adjustment as described in the 2017 Plan, the number of Common Shares available under the 2017 Plan for awards of:
● | stock options or SARs; |
● | restricted stock; |
● | RSUs; |
● | performance shares or performance units; |
● | other stock-based awards under the 2017 Plan; |
● | awards tonon-employee Directors; or |
● | dividend equivalents paid with respect to awards under the 2017 Plan; |
will be, in the aggregate, 2,500,000Common Shares, (1) minus, as of the effective date, one share for every one share subject to an award granted under the 2010 Plan between March 1, 2017 and the effective date, and (2) plus any Common Shares that become available under the 2017 Plan as a result of forfeiture, cancellation, expiration, cash settlement or less-than-maximum earning of awards. Such shares may be shares of original issuance, treasury shares or a combination of the foregoing.
Other Share Limits Under the 2017 Plan: The 2017 Plan also includes certain other share limits, as described above under “2017 Plan Highlights.”
Subject to the discretionary acceleration provisions of the 2017 Plan, up to 5% of the aggregate number of Common Shares available for awards under the 2017 Plan, as may be adjusted pursuant to the 2017 Plan, may be used for awards that do not at grant comply with the applicableone-year minimum vesting and performance period requirements for such awards.
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EQUITY PLAN
Share Counting: The aggregate number of Common Shares available under the 2017 Plan will be reduced by one Common Share for every one Common Share subject to an award granted under the 2017 Plan.
Subject to certain exceptions described in the 2017 Plan, if any award granted under the 2017 Plan is cancelled or forfeited, expires, is settled for cash (in whole or in part), or is unearned, the Common Shares subject to the award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available under the 2017 Plan. If, after March 1, 2017, any Common Shares subject to an award granted under the 2010 Plan are forfeited, or an award granted under the 2010 Plan is cancelled or forfeited, expires or is settled in cash (in whole or in part), or is unearned, the Common Shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be available for awards under the 2017 Plan.
The 2017 Plan further provides that the following Common Shares will not be added (or added back, as applicable) to the aggregate number of Common Shares available under the 2017 Plan: (1) Common Shares withheld by us, tendered or otherwise used in payment of the exercise price of a stock option granted under the 2017 Plan, (2) Common Shares withheld by us, tendered or otherwise used to satisfy a tax withholding obligation, (3) Common Shares subject to a SAR granted under the 2017 Plan that are not actually issued in connection with the settlement of such SAR on exercise, and (4) Common Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of stock options granted under the 2017 Plan. Further, if under the 2017 Plan a participant has elected to give up the right to receive compensation in exchange for Common Shares based on fair market value, such Common Shares will not count against the aggregate number of Common Shares available under the 2017 Plan.
Common Shares issued or transferred pursuant to awards granted under the 2017 Plan in substitution for or in conversion of, or in connection with the assumption of, awards held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our subsidiaries, and shares available under certain plans that we or our subsidiaries may assume in connection with corporate transactions from another entity may be available for certain awards under the 2017 Plan, but will not be added to the share limits under the 2017 Plan if such award is cancelled or forfeited, expires or is settled for cash (in whole or in part).
Types of Awards Under the 2017 Plan: Pursuant to the 2017 Plan, the Company may grant stock options (including stock options intended to be “incentive stock options” as defined in Section 422 of the Code (“Incentive Stock Options”)), SARs, restricted stock, RSUs, performance shares, performance units, cash incentive awards, and certain other awards based on or related to our Common Shares.
Generally, each grant of an award under the 2017 Plan will be evidenced by an award agreement, certificate, resolution or other type or form of writing or other evidence approved by the Committee (an “Evidence of Award”), which will contain such terms and provisions as the Committee may determine, consistent with the 2017 Plan. A brief description of the types of awards which may be granted under the 2017 Plan is set forth below.
Stock Options: A stock option is a right to purchase Common Shares upon exercise of the stock option. Stock options granted to an employee under the 2017 Plan may consist of either an Incentive Stock Option, anon-qualified stock option that is not intended to be an “incentive stock option” under Section 422 of the Code, or a combination of both. Incentive Stock Options may only be granted to employees of the Company or certain of our related corporations. Except with respect to certain awards issued in substitution for, in conversion of, or in connection with an assumption of stock options held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our subsidiaries, Incentive Stock Options andnon-qualified stock options must have an exercise price per share that is not less than the fair market value of a Common Share on the date of grant. The term of a stock option may not extend more than ten years after the date of grant.
Each grant of a stock option will specify the applicable terms of the stock option, including the number of Common Shares subject to the stock option and the required period or periods of the participant’s continuous service before any stock option or portion of a stock option will become exercisable (subject to the minimum vesting requirements described above). Stock options may provide for continued vesting or the earlier exercise of the stock options, including in the event of retirement, death or disability of the participant or in the event of a Change of Control.
Any grant of stock options may specify management objectives that must be achieved as a condition to the exercise of the stock options. Each grant will specify whether the consideration to be paid in satisfaction of the exercise price will be payable (1) in cash, by check acceptable to the Company, or by wire transfer of immediately available funds; (2) by
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the actual or constructive transfer to the Company of Common Shares owned by the participant (or certain other consideration authorized under the 2017 Plan) with a value at the time of exercise that is equal to the total exercise price; (3) subject to any conditions or limitations established by the Committee, by a net exercise arrangement pursuant to which the Company will withhold Common Shares otherwise issuable upon exercise of a stock option; (4) by a combination of the foregoing methods; or (5) by such other methods as may be approved by the Committee. To the extent permitted by law, any grant may provide for deferred payment of the exercise price from the proceeds of a sale through a bank or broker of some or all of the shares to which the exercise relates. Stock options granted under the 2017 Plan may not provide for dividends or dividend equivalents. The exercise of a stock option will result in the cancellation on ashare-for-share basis of any Tandem Appreciation Right (as defined below).
Subject to certain limitations described in the 2017 Plan, the Committee may substitute, without receiving a participant’s permission, SARs payable only in Common Shares (or SARs payable in Common Shares or cash, or a combination of both) for outstanding stock options. However, the terms of the substituted SARs must be substantially the same as the terms for the stock options and the difference between the fair market value of the underlying Common Shares and the base price of the SARs must be equivalent to the difference between the fair market value of the underlying Common Shares and the exercise price of the stock options.
Appreciation Rights: The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting (1) to any optionee, of Tandem Appreciation Rights in respect of stock options granted under the 2017 Plan, and (2) to any participant, of Free-Standing Appreciation Rights. A “Tandem Appreciation Right” is a right of the optionee, exercisable by surrender of the related stock options, to receive from the Company an amount determined by the Committee, which will be expressed as a percentage of the spread between the exercise price of such related stock options and the value of the Common Shares (not exceeding 100%) at the time of exercise. Tandem Appreciation Rights may generally be granted at any time prior to the exercise or termination of the related stock options. However, a Tandem Appreciation Right awarded in relation to an Incentive Stock Option must be granted concurrently with such Incentive Stock Option. A “Free-Standing Appreciation Right” is a right of the participant to receive from the Company an amount determined by the Committee, which will be expressed as a percentage of the spread between the base price of such Free-Standing Appreciation Right and the value of the Common Shares (not exceeding 100%) at the time of exercise.
Each Evidence of Award with respect to a grant of SARs will describe such SARs, identify the related stock options (if applicable), and contain such other terms and provisions, consistent with the 2017 Plan, as the Committee may approve. Appreciation rights may provide for continued vesting or earlier exercise, including in the case of retirement, death or disability of the participant or in the event of a Change of Control. Any grant of SARs may specify management objectives that must be achieved as a condition of the exercise of such SARs. A SAR may be paid in cash, Common Shares or any combination of the two.
Except with respect to awards issued in substitution for, in conversion of, or in connection with an assumption of SARs held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our subsidiaries, the base price of a Free-Standing Appreciation Right will be equal to or greater than the fair market value of a Common Share on the date of grant. Any grant of Tandem Appreciation Rights will provide that such Tandem Appreciation Rights may be exercised only at a time when the related stock option is also exercisable and at a time when the spread is positive, and by surrender of the related stock option for cancellation. For the avoidance of doubt, except with respect to awards issued in substitution for, in conversion of, or in connection with an assumption of SARs held by awardees of an entity engaging in a corporate acquisition or merger with us or any of our subsidiaries, the option price of the stock option to which the Tandem Appreciation Right relates will be equal to or greater than the fair market value of a Common Share on the date of grant of the stock option. The term of a Free-Standing Appreciation Right may not extend more than ten years from the date of grant. Appreciation rights granted under the 2017 Plan may not provide for dividends or dividend equivalents.
Restricted Stock: Restricted stock constitutes an immediate transfer of the ownership of Common Shares to the participant in consideration of the performance of services, entitling such participant to dividend, voting and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer determined by the Committee for a period of time determined by the Committee or until certain management objectives specified by the Committee are achieved (subject to the minimum vesting requirements described above). Each such grant or sale of restricted stock may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value per Common Share on the date of grant.
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Any grant of restricted stock may specify management objectives that, if achieved, will result in termination or early termination of the restrictions applicable to the restricted stock. Each grant of restricted stock may specify in respect of such management objectives a minimum acceptable level of achievement and may set forth a formula for determining the number of shares of restricted stock on which restrictions will terminate if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified management objectives. Any grant of restricted stock will require that any and all dividends or distributions paid on restricted stock that remain subject to a substantial risk of forfeiture be automatically deferred and/or reinvested in additional shares of restricted stock, which will be subject to the same restrictions as the underlying restricted stock. Any such dividends or other distributions on restricted stock will be deferred until, and paid contingent upon, the vesting of such restricted stock.
Notwithstanding the minimum vesting requirements described above, restricted stock may provide for continued vesting or the earlier termination of restrictions on such restricted stock, including in the event of retirement, death or disability of the participant or a Change of Control, except in the case of a Qualified Performance-Based Award (other than in connection with the death or disability of the participant or a Change of Control) to the extent such provisions would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
Restricted Stock Units: RSUs awarded under the 2017 Plan constitute an agreement by the Company to deliver Common Shares, cash, or a combination of the two, to the participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include the achievement of management objectives) during the restriction period as the Committee may specify (subject to the minimum vesting requirements described above). Each grant or sale of RSUs may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value of Common Shares on the date of grant.
If a grant of RSUs specifies that the restriction period will terminate only upon the achievement of management objectives or that the RSUs will be earned based on the achievement of management objectives, then each grant of RSUs may specify in respect of such management objectives a minimum acceptable level of achievement and may set forth a formula for determining the number of RSUs on which restrictions will terminate if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified management objectives.
Notwithstanding the minimum vesting requirements described above, RSUs may provide for continued vesting or the earlier lapse or other modification of the restriction period, including in the event of retirement, death or disability of the participant or in the event of a Change of Control, except in the case of a Qualified Performance-Based Award (other than in connection with the death or disability of the participant or a Change of Control) to the extent such provisions would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
During the restriction period applicable to RSUs, the participant will have no rights of ownership in the Common Shares underlying the RSUs and no right to vote them. Rights to dividend equivalents may be extended to and made part of any RSU award at the discretion of and on the terms determined by the Committee, on a deferred and contingent basis, either in cash or in additional Common Shares, but dividend equivalents or other distributions on Common Shares underlying the RSUs will be deferred until and paid contingent upon vesting of such RSUs. Each grant or sale of RSUs will specify the time and manner of payment of the RSUs that have been earned.
Cash Incentive Awards, Performance Shares, and Performance Units: Performance shares, performance units and cash incentive awards may also be granted to participants under the 2017 Plan. A performance share is a bookkeeping entry that records the equivalent of a Common Share, and a performance unit is a bookkeeping entry that records a unit equivalent to $1.00 or such other value as determined by the Committee. Each grant will specify the number of performance shares or performance units, or the amount payable with respect to a cash incentive award being awarded, which number or amount may be subject to adjustment to reflect changes in compensation or other factors. However, no such adjustment will be made in the case of a Qualified Performance-Based Award (other than in connection with the death or disability of the participant or a Change of Control) where such action would result in the loss of the otherwise available exemption under Section 162(m) of the Code.
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These awards, when granted under the 2017 Plan, become payable to participants based upon of the achievement of specified management objectives and upon such terms and conditions as the Committee determines at the time of grant. Each grant may specify with respect to the management objectives a minimum acceptable level or levels of achievement and may set forth a formula for determining the number of performance shares or performance units, or the amount payable with respect to a cash incentive award, that will be earned if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels but falls short of maximum achievement. Each grant will specify the time and manner of payment of a cash incentive award, performance shares or performance units that have been earned. Any grant may specify that the amount payable with respect to such grant may be paid by the Company in cash, in Common Shares, in restricted stock or RSUs, or in any combination thereof.
Any grant of performance shares may provide for the payment of dividend equivalents in cash or in additional Common Shares, subject to deferral and payment on a contingent basis based on the participant’s earning of the performance shares with respect to which such dividend equivalents are paid.
The performance period with respect to each cash incentive award or grant of performance shares or performance units will be a period of time (not less than one year) determined by the Committee and within which the management objectives relating to such award are to be achieved. Notwithstanding the minimum vesting requirement described in this paragraph, the performance period may be subject to continued vesting or earlier lapse or modification, including in the event of retirement, death or disability of the participant or a Change of Control. However, no such adjustment will be made in the case of a Qualified Performance-Based Award (other than in connection with the death or disability of the participant or a Change of Control) where such action would result in the loss of the otherwise available exemption under Section 162(m) of the Code.
Awards toNon-Employee Directors: The Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting tonon-employee Directors of stock options, SARs or other awards and may also authorize the grant or sale of Common Shares, restricted stock or RSUs tonon-employee Directors. Each grant of an award to anon-employee Director will be upon such terms and conditions as approved by the Committee and will be evidenced by an Evidence of Award in such form as will be approved by the Committee. Such awards will not be required to be subject to any minimum vesting period. Such awards may provide for continued vesting or earlier vesting, including in the event of retirement, death or disability, or a Change of Control.
Each grant will specify in the case of stock options, an exercise price per share, and in the case of a Free-Standing Appreciation Right, a base price per share, which will generally not be less than the market value per share on the date of grant. Each stock option and Free-Standing Appreciation Right granted under the 2017 Plan to anon-employee Director will expire not more than ten years from the date of grant and will be subject to earlier termination as provided in the 2017 Plan. If anon-employee Director subsequently becomes an employee of the Company or a subsidiary while remaining a member of the Board, any award held under the 2017 Plan by such individual at the time of such commencement of employment will not be affected thereby.Non-employee Directors may be awarded, or may be permitted to elect to receive, pursuant to procedures established by the Committee, all or any portion of their annual retainer, meeting fees or other fees in Common Shares, restricted stock, RSUs or other awards under the 2017 Plan in lieu of cash.
Other Awards: The Committee may, subject to limitations under applicable law and under the 2017 Plan, grant to any participant Common Shares or such other awards (“Other Awards”) that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Common Shares or factors that may influence the value of such Common Shares, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into Common Shares, purchase rights for Common Shares, awards with value and payment contingent upon performance of the Company or specified subsidiaries, affiliates or other business units or any other factors designated by the Committee, and awards valued by reference to the book value of the Common Shares or the value of securities of, or the performance of the subsidiaries, affiliates or other business units of the Company. The terms and conditions of any such awards will be determined by the Committee (subject to the minimum vesting requirements described above). Common Shares delivered under an award in the nature of a purchase right granted under the 2017 Plan will be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, cash, Common Shares, other awards, notes or other property, as the Committee determines.
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In addition, the Committee may grant cash awards, as an element of or supplement to any other awards granted under the 2017 Plan. The Committee may also grant Common Shares as a bonus, or may grant other awards in lieu of obligations of the Company or a subsidiary to pay cash or deliver other property under the 2017 Plan or under other plans or compensatory arrangements, subject to terms determined by the Committee, in a manner than complies with Section 409A of the Code.
Notwithstanding the minimum vesting requirements described above, Other Awards may provide for the earning or vesting of, or earlier elimination of restrictions applicable to, such award, including in the event of the retirement, death, or disability of the participant or in the event of a Change of Control. However, no such adjustment will be made in the case of a Qualified Performance-Based Award (other than in connection with the death or disability of the participant or a Change of Control) where such action would result in the loss of the otherwise available exemption under Section 162(m) of the Code. The Committee may provide for the payment of dividends or dividend equivalents on Other Awards in cash or in additional Common Shares, subject to deferral and payment on a contingent basis based on the participant’s earning of the Other Awards with respect to which such dividends or dividend equivalents are paid.
Change of Control: The 2017 Plan includes a definition of “Change of Control.” In general, except as otherwise provided for in an Evidence of Award, Change of Control means the occurrence of any of the following events (subject to certain limitations and as further described in the 2017 Plan):
● | The acquisition by a person of beneficial ownership (within the meaning of Rule13d-3 promulgated under the Exchange Act) of voting securities of the Company where such acquisition causes the person to own 25% 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 (“Outstanding Company Voting Securities”), excluding (A) any acquisition directly from the Company that is approved by the Incumbent Board (as defined below), (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction that complies with clauses (A), (B) and (C) of the third bullet below. However, if any person’s beneficial ownership of Outstanding Company Voting Securities reaches or exceeds 25% as a result of a transaction described in (A) or (B) above, and such person subsequently acquires beneficial ownership of additional voting securities of the Company, such subsequent acquisition will be treated as an acquisition that causes such person to own 25% or more of the Outstanding Company Voting Securities. Further, if at least a majority of the members of the Incumbent Board determines in good faith that a person has acquired beneficial ownership of 25% 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 less than 25% of the Outstanding Company Voting Securities, then no Change of Control will have occurred as a result of such person’s acquisition; |
● | Individuals who, as of May 11, 2017, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, unless their replacements are approved as described in the 2017 Plan (subject to certain exceptions); |
● | The Company closes a reorganization, merger, consolidation, sale, or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation or other transaction (“Business Combination”) excluding, however, such a Business Combination pursuant to which (A) 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 Common Shares 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 entity resulting from such Business Combination (including, without limitation, an entity 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), (B) no person (excluding any employee benefit plan (or related trust) of the Company, the Company or such entity resulting from such Business Combination) beneficially owns, directly, or indirectly, 25% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the entity resulting from such Business Combination and (C) 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 |
● | Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company except pursuant to a Business Combination that complies with clauses (A), (B) and (C) of the third bullet above. |
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Management Objectives; Qualified Performance-Based Awards: The 2017 Plan permits the Company to grant both Qualified Performance-Based Awards and awards that are not intended to be Qualified Performance-Based Awards, and provides that the awards set forth above generally may be granted subject to the achievement of specified management objectives.
Management objectives are defined as the measurable performance objective or objectives established pursuant to the 2017 Plan for participants who have received grants of performance shares, performance units or cash incentive awards or, when so determined by the Committee, stock options, SARs, restricted stock, RSUs, dividend equivalents or Other Awards. Management objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual participant or of one or more of the subsidiaries, divisions, departments, regions, functions or other organizational units within the Company or its subsidiaries. The management objectives may be made relative to the performance of other companies or subsidiaries, divisions, departments, regions, functions or other organizational units within such other companies, and may be made relative to an index or one or more of the performance objectives themselves.
The Committee may grant awards subject to management objectives that are either Qualified Performance-Based Awards or are not Qualified Performance-Based Awards. Under the 2017 Plan, the management objectives applicable to any Qualified Performance-Based Award to a covered employee must be based on one or more, or a combination, of the metrics set forth above under the heading “Section 162(m).”
Additionally, in the case of a Qualified Performance-Based Award, each such management objective must be objectively determinable to the extent required under Section 162(m) of the Code, and, unless otherwise determined by the Committee and to the extent consistent with Section 162(m) of the Code, will exclude the effects of certain designated items identified at the time of grant. Management objectives that are financial metrics may be determined in accordance with GAAP or financial metrics that are based on, or able to be derived from GAAP, and may be adjusted when established (or to the extent permitted under Section 162(m) of the Code, at any time thereafter) to include or exclude any items otherwise includable or excludable under GAAP. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the management objectives unsuitable, the Committee may in its discretion modify such management objectives or the acceptable levels of achievement, in whole or in part, as the Committee deems appropriate and equitable, except in the case of a Qualified Performance-Based Award (other than in connection with a participant’s death or disability or a Change of Control of the Company) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
Transferability of Awards: Except as otherwise provided by the Committee, no stock option, SAR, restricted stock, RSU, performance share, performance unit, cash incentive award, Other Award or dividend equivalents paid with respect to awards made under the 2017 Plan will be transferrable by a participant except by will or the laws of descent and distribution. In no event will any such award granted under the 2017 Plan be transferred for value. Except as otherwise determined by the Committee, stock options and SARs will be exercisable during the participant’s lifetime only by him or her or, in the event of the participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the participant in a fiduciary capacity under state law or court supervision.
The Committee may specify on the grant date that all or part of the Common Shares that are subject to awards under the 2017 Plan will be subject to further restrictions on transfer.
Adjustments; Corporate Transactions: The Committee will make or provide for such adjustments in: (1) the number of and kind of Common Shares covered by outstanding stock options, SARs, restricted stock, RSUs, performance shares and performance units granted under the 2017 Plan; (2) if applicable, the number of and kind of Common Shares covered by Other Awards granted pursuant to the 2017 Plan; (3) the exercise price or base price provided in outstanding stock options and SARs, respectively; (4) cash incentive awards; and (5) other award terms, as the Committee in its sole discretion, exercised in good faith determines to be equitably required in order to prevent
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dilution or enlargement of the rights of participants or optionees that otherwise would result from (A) any extraordinary cash dividend, stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company; (B) any merger, consolidation,spin-off,spin-out,split-off,split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities; or (C) any other corporate transaction or event having an effect similar to any of the foregoing.
In the event of any such transaction or event, or in the event of a Change of Control of the Company, the Committee may provide in substitution for any or all outstanding awards under the 2017 Plan such alternative consideration (including cash), if any, as it may in good faith determine to be equitable under the circumstances and will require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each stock option or SAR with an exercise price or base price, respectively, greater than the consideration offered in connection with any such transaction or event or Change of Control of the Company, the Committee may in its sole discretion elect to cancel such stock option or SAR without any payment to the person holding such stock option or SAR. The Committee will make or provide for such adjustments in the numbers of Common Shares available for issuance under the 2017 Plan and the share limits of the 2017 Plan as the Committee in its sole discretion in good faith determines to be appropriate in connection with such transaction or event. However, any adjustment to the limit on the number of Common Shares that may be issued upon exercise of Incentive Stock Options will be made only if and to the extent such adjustment would not cause any stock option intended to qualify as an Incentive Stock Option to fail to so qualify.
Prohibition on Repricing: Except in connection with certain corporate transactions or changes in the capital structure of the Company or in connection with a Change of Control, the terms of outstanding awards may not be amended to (1) reduce the exercise price or base price of outstanding stock options or SARs, respectively, or (2) cancel outstanding “underwater” stock options or SARs (including following a participant’s voluntary surrender of “underwater” stock options or SARs) in exchange for cash, Other Awards or stock options or SARs with an exercise price or base price, as applicable, that is less than the exercise price or base price of the original stock options or SARs, as applicable, without shareholder approval. The 2017 Plan specifically provides that this provision is intended to prohibit the repricing of “underwater” stock options and SARs and that it may not be amended without approval by our shareholders.
Detrimental Activity and Recapture: Any Evidence of Award may provide for the cancellation or forfeiture and repayment to us of any award or gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Committee from time to time, if any participant, either during employment or other service with us or a subsidiary or within a specified period after such employment or service, engages in any detrimental activity, as described in the applicable Evidence of Award. In addition, any Evidence of Award may provide for cancellation or forfeiture of an award or the forfeiture and repayment of any Common Shares issued under and/or any other benefit related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be required by the Committee or under Section 10D of the Exchange Act and any applicable rules and regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the Common Shares may be traded.
Grants toNon-U.S. Based Participants: In order to facilitate the making of any grant or combination of grants under the 2017 Plan, the Committee may provide for such special terms for awards to participants who are foreign nationals, who are employed by the Company or any of its subsidiaries outside of the United States of America or who provide services to the Company or any of its subsidiaries under an agreement with a foreign nation or agency, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. The Committee may approve such supplements to, or amendments, restatements or alternative versions of, the 2017 Plan (including without limitation,sub-plans) as it may consider necessary or appropriate for such purposes, provided that no such special terms, supplements, amendments or restatements will include any provisions that are inconsistent with the terms of the 2017 Plan as then in effect unless the 2017 Plan could have been amended to eliminate such inconsistency without further approval by our shareholders.
Withholding: To the extent the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by a participant or other person under the 2017 Plan, and the amounts available to us for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld, which arrangements, in
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the discretion of the Committee, may include relinquishment of a portion of such benefit. If a participant’s benefit is to be received in the form of Common Shares, and such participant fails to make arrangements for the payment of taxes or other amounts, then, unless otherwise determined by the Committee, we will withhold such Common Shares having a value equal to the amount required to be withheld. When a participant is required to pay the Company an amount required to be withheld under applicable income, employment, tax or other laws, the participant may elect, unless otherwise determined by the Committee, to satisfy the obligation, in whole or in part, by having withheld, from the shares required to be delivered to the participant, Common Shares having a value equal to the amount required to be withheld or by delivering to us other Common Shares held by such participant. The shares used for tax or other withholding will be valued at an amount equal to the fair market value of such Common Shares on the date the benefit is to be included in participant’s income. In no event will the fair market value of the Common Shares to be withheld and delivered pursuant to the 2017 Plan to satisfy applicable withholding taxes or other amounts in connection with the benefit exceed the maximum amount of taxes that could be required to be withheld. Participants will also make such arrangements as the Company may require for the payment of any withholding tax or other obligation that may arise in connection with the disposition of Common Shares acquired upon the exercise of stock options.
No Right to Continued Employment: The 2017 Plan does not confer upon any participant any right with respect to continuance of employment or service with the Company or any of its subsidiaries.
Effective Date of the 2017 Plan: The 2017 Plan will become effective on the date it is approved by the Company’s shareholders. No grants will be made under the 2010 Plan on or after the date on which our shareholders approve the 2017 Plan, provided that outstanding awards granted under the 2010 Plan will continue unaffected following such date.
Amendment and Termination of the 2017 Plan: The Board (and only the Board) may amend the 2017 Plan from time to time in whole or in part. However, if any amendment (1) would materially increase the benefits accruing to participants under the 2017 Plan, (2) would materially increase the number of shares which may be issued under the 2017 Plan, (3) would materially modify the requirements for participation in the 2017 Plan, or (4) must otherwise be approved by our shareholders in order to comply with applicable law or the rules of the New York Stock Exchange, then such amendment will be subject to shareholder approval and will not be effective unless and until such approval has been obtained.
Further, subject to the 2017 Plan’s prohibition on repricing, the Committee generally may amend the terms of any award prospectively or retroactively, except in the case of Qualified Performance-Based Award (other than in connection with the participant’s death or disability, or a Change of Control) where such action would result in the loss of the otherwise available exemption under Section 162(m) of the Code. Except in the case of certain adjustments permitted under the 2017 Plan, no such amendment may be made that would impair the rights of any participant without his or her consent. If permitted by Section 409A of the Code and Section 162(m) of Code and subject to certain other limitations set forth in the 2017 Plan, notwithstanding the minimum vesting requirements described above, and including in the case of termination of employment or service due to death, disability or normal or early retirement, in the case of unforeseeable emergency or other circumstances or in the event of a Change of Control, the Committee may provide for continued vesting or accelerate the vesting of certain awards granted under the 2017 Plan (except that with respect to Qualified Performance-Based Awards, no such action may be taken if it would result in the loss of the otherwise available exemption of such award under Section 162(m) of the Code).
The Board may, in its discretion, terminate the 2017 Plan at any time. Termination of the 2017 Plan will not affect the rights of participants or their successors under any awards outstanding and not exercised in full on the date of termination. No grant will be made under the 2017 Plan on or after the tenth anniversary of the effective date of the 2017 Plan, but all grants made prior to such date will continue in effect thereafter subject to their terms and the terms of the 2017 Plan.
New Plan Benefits
It is not possible to determine the specific amounts and types of awards that may be awarded in the future under the 2017 Plan because the grant and actualpay-out of awards under the 2017 Plan are subject to the discretion of the plan administrator.
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U.S. Federal Income Tax Consequences
The following is a brief summary of certain of the federal income tax consequences of certain transactions under the 2017 Plan based on federal income tax laws in effect. This summary, which is presented for the information of shareholders considering how to vote on this proposal and not for 2017 Plan participants, is not intended to be complete and does not describe federal taxes other than income taxes (such as Medicare and Social Security taxes), or state, local or foreign tax consequences.
Tax Consequences to Participants
Restricted Stock. The recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the restricted stock (reduced by any amount paid by the recipient for such restricted stock) at such time as the shares of restricted stock are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted stock. If a Section 83(b) election has not been made, any dividends received with respect to shares of restricted stock that are subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the recipient.
Performance Shares and Performance Units. No income generally will be recognized upon the grant of performance shares or performance units. Upon payment in respect of theearn-out of performance shares or performance units, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted Common Shares received.
Nonqualified Stock Options.In general:
· | no income will be recognized by an optionee at the time anon-qualified stock option is granted; |
· | at the time of exercise of anon-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the exercise price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and |
· | at the time of sale of shares acquired pursuant to the exercise of anon-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held. |
Incentive Stock Options.No income generally will be recognized by an optionee upon the grant or exercise of an Incentive Stock Option. The exercise of an Incentive Stock Option, however, may result in alternative minimum tax liability. If Common Shares are issued to the optionee pursuant to the exercise of an Incentive Stock Option, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the exercise price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.
If Common Shares acquired upon the exercise of an Incentive Stock Option are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.
Appreciation Rights. No income will be recognized by a participant in connection with the grant of a SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted Common Shares received on the exercise.
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EQUITY PLAN
Restricted Stock Units.No income generally will be recognized upon the award of RSUs. The recipient of an RSU award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted Common Shares on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.
Tax Consequences to the Company or its Subsidiaries
To the extent that a participant recognizes ordinary income in the circumstances described above, the Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code. In this regard, certain types of awards under the 2017 Plan, such as time-vested restricted stock and RSUs, cannot qualify as performance-based awards under Section 162(m) of the Code, and in other cases awards may fail to qualify if all requirements for qualification are not met in connection with such awards.
Registration with the SEC
We intend to file a Registration Statement on FormS-8 relating to the issuance of Common Shares under the 2017 Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the 2017 Plan by our shareholders.
Equity Compensation Plan Information
Number of securities to be issued upon exercise of and rights | Weighted-average exercise warrants and rights | Number of securities remaining under equity compensation plans (excluding securities reflected in column (a)) | ||||
Plan category | (a) | (b) | (c) | |||
Equity compensation plans approved by security holders | 1,792,671 | $25.73 | 1,577,686 (1) | |||
Equity compensation plans not approved by security holders | — | — | — | |||
|
|
| ||||
Total | 1,792,671 | $25.73 | 1,577,686 | |||
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|
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(1) | In addition to options, warrants and rights, the Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan (the 2010 Plan) authorizes the issuance of restricted stock, RSUs, performance shares and awards tonon-employee Directors. The 2010 Plan limits the total number of shares that may be issued as one or more of these types of awards to 2.6 million. On May 14, 2015 our shareholders approved an amendment to this plan whereby, among other provisions, a total of 6.2 million Common Shares are reserved for grant under the 2010 Plan. |
Our current Directors had a total of 182,630 shares deferred as of December 31, 2016 (including the fourth quarter dividend declared on October 13, 2016 to shareholders of record on December 16, 2016, which was paid on January 6, 2017). The deferred shares are held in a trust and are currently part of our outstanding Common Shares.
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Corporate GovernancePROPOSAL 5 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed Ernst & Young LLP as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending December 31, 2017. The Board 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 auditor. The Board 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 withoutre-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 our best interests and the best interests of our shareholders. The affirmative vote of a majority of the shares voting on this proposal is required for ratification.
A representative of Ernst & Young LLP is expected to be present at the Annual Meeting. 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, 2016.
Our Board recommends a vote FOR Proposal 5 to ratify the Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for 2017. |
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 consolidated financial statements, the audit of internal controls over financial reporting, the reviews of our quarterly reports onForm 10-Q, the issuance of comfort letters and consents, review of registration statements filed with the SEC, accounting and financial reporting consultations and international statutory audits. Fees for audit services totaled $3.5 million in 2016 and $3.7 million in 2015. The full Audit Committee or the Chair of the Audit Committeepre-approved all audit services and related fee arrangements for 2016 in accordance with the Audit CommitteePre-Approval Policy for all Audit andNon-Audit Services and Related Fee Arrangements.
Audit-Related Fees. Audit-related services principally include employee benefit plan audits, accounting consultations, attest services that are not required by statute or regulation and other international attest services not classified as audit fees. Fees for audit-related services totaled $0.1 million in both 2016 and 2015. The Audit Committeepre-approved all audit-related fee arrangements billed for 2016.
Tax Fees. Tax services include tax compliance, tax advice and tax planning. Fees for tax services totaled $3.1 million in 2016 and $1.7 million in 2015. The Audit Committeepre-approved all tax fee arrangements billed in 2016.
All Other Fees. No fees for other services were billed in 2016 and 2015.
Our Audit CommitteePre-Approval Policy for all Audit andNon-Audit Services and Related Fee Arrangements (the“Pre-Approval Policy”) requires our Audit Committee topre-approve all audit andnon-audit services performed by Ernst & Young LLP in order to assure that the provision of such services and related fee arrangements do not impair Ernst & Young LLP’s independence. Under thePre-Approval Policy, the Audit Committee may delegate
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pre-approval authority to one or more of its members, and the member or members to whom the Audit Committee delegates such authority must report anypre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee has formally delegated thispre-approval authority to its Chair. Management has no authority to approve services performed by Ernst & Young LLP that have not beenpre-approved by the Audit Committee. The term of anypre-approval is 12 months from the date ofpre-approval, unless the Audit Committee specifically provides for a different period.
Ernst & Young LLP will provide us a description of work scope and supportingback-up documentation regarding the specific services they will provide. At each meeting of the Audit Committee, the current year’s previouslypre-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 separatepre-approval will be submitted to the Audit Committee or the Audit Committee Chair by Ernst & Young LLP and our Chief Financial Officer, or Controller, and must include a statement as to whether, in each of their respective views, the request is consistent with the Commission’s rules on auditor independence.
Report of the Audit Committee
The Audit Committee assists the Board in fulfilling its oversight responsibilities to shareholders relating to the integrity of the Company’s consolidated financial statements, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence and the performance of the Company’s internal and independent auditors. The Committee approves, subject to shareholder ratification, the appointment of the Company’s independent registered public accounting firm andpre-approves all audit andnon-audit services to be performed by the firm. The Audit Committee through its Chairperson is also directly involved in the selection of Ernst & Young LLP’s lead engagement partner, which occurs every five years. The next lead engagement partner rotation will occur in 2017. PolyOne’s Audit Committee believes that the continued retention of Ernst & Young LLP to serve as PolyOne’s independent registered public accounting firm is in the best interests of PolyOne and its shareholders. In making such determination, the Audit Committee considers, among other things, an evaluation of Ernst & Young’s performance as well as the impact of changing auditors. Ernst & Young LLP has been retained as PolyOne’s independent registered public accounting firm continuously since 2000.
Management has the primary responsibility for the completeness and accuracy of the Company’s consolidated financial statements and disclosures, the financial reporting process and the effectiveness of the Company’s internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited consolidated financial statements in the Annual Report with management and the independent auditor including any significant changes in the Company’s selection or application of accounting principles. The Committee also reviewed and discussed with management and the independent auditor management’s report on internal control over financial reporting, including the significance and status of control deficiencies identified and the results of remediation efforts undertaken, to determine the effectiveness of internal control over financial reporting at December 31, 2016. The Committee reviewed with the independent auditor, which has the responsibility for expressing an opinion on the conformity of the consolidated 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 auditor its report on the Company’s internal control over financial reporting at December 31, 2016, including the basis for its conclusions. The Audit Committee reviewed and discussed with the independent registered public accounting firm all communications required by applicable auditing standards. In addition, Ernst & Young LLP has provided the Committee with the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Committee concerning independence and the Committee has discussed with Ernst & Young LLP their firm’s independence from management and PolyOne. The Committee haspre-approved all audit, audit-related andnon-audit services and fees provided to the Company by the independent auditor. 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 and evaluated their 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 control over financial reporting, and the overall quality of PolyOne’s financial reporting.
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In reliance on the reviews and discussions referred to above, the Committee recommended to the Board (and the Board has approved) that the audited consolidated financial statements and management’s assessment of the effectiveness of the Company’s internal control over financial reporting be included in the Annual Report onForm 10-K for the year ended December 31, 2016, for filing with the Securities and Exchange Commission.
The Committee hasre-appointed Ernst & Young as independent auditor for the year 2017.
All members of the Audit Committee concur with this report.
The Audit Committee of
the Board of Directors
Richard H. Fearon
William R. Jellison
Sandra B. Lin
Richard A. Lorraine, Chairperson
William A. Wulfsohn
February 15, 2017
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Director Independence
Our Corporate Governance Guidelines provide that a substantial majority of the members of our Board of Directors should be “independent” under the listing standards of the New York Stock Exchange (“NYSE”).“independent.” To be considered “independent,”independent, the Board, of Directorswith input and a recommendation from the Nominating and Governance Committee, must make an affirmative determinationaffirmatively determine 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), and that thegiven Director is free from any business, family or other relationship that would reasonably be expected to interfere with the exercise of independent judgment as a Director. In each case,Under categorical independence standards adopted by our Board, the Board must determine that a Director is not independent if he or she fails to meet the independence standards under the listing standards of Directors considers all relevant factsthe New York Stock Exchange (“NYSE”).
In addition, our categorical independence standards provide that the following categories of relationships between an outside Director and circumstances in makingthe Company will be treated as immaterial for purposes of determining a Director’s independence.
· | If the Director is an executive officer, other employee or director of any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years where the amount involved in such transaction in any such fiscal year was less than the greater of $1 million or 2% of the organization’s consolidated gross revenues for that year; |
· | If the Director is a director of any organization to which the Company has made, or from which the Company has received payments for property or services, and the Director was not involved in the negotiations of the terms of the transaction, did not, to the extent applicable, provide any services directly to the Company, and did not receive any special benefits as a result of the transaction; or |
· | If the Director, or an immediate family member of the Director, serves as an officer, director or trustee of a foundation, university, charitable or othernot-for-profit organization, and the Company’s discretionary charitable contributions to the organization, in the aggregate are less than the greater of $1 million or 2% of that organization’s latest publicly available annual consolidated gross revenues. |
Our categorical independence determination.standards and the material relationship considerations set forth above are found within our Corporate Governance Guidelines, which are available on our website at www.polyone.com, under “Governance” on our investor relations page.
TheOur Board performed its independence review earlier this year. In applying the categorical standards set forth above and assessing the materiality of Directorsany relationships, the Board affirmatively determined that Dr. Carol A. Cartwright,each of Richard H. Fearon, Gregory J. Goff, Gordon D. Harnett,William R. Jellison, Sandra B. Lin, Richard A. Lorraine, Kim Ann Mink, William H. Powell, Kerry J. Preete, Farah M. Walters and William A. Wulfsohn areis independent underand meets the categorical independence standards described above, has no material relationship with the Company other than that arising solely from the capacity as a Director and, in addition, satisfies the independence requirements of the NYSE, “independent director” listing standards. In making this determination,including the Board reviewed significant transactions, arrangements or relationships that aNYSE independence standards applicable to the committees on which each such Director might have with our customers or suppliers. In making this determination with respect to Mr. Fearon, the Board determined that the sales of products by PolyOne to Eaton, of which Mr. Fearon serves as an executive officer, did not create a material relationship or impair the independence of Mr. Fearon because Mr. Fearon receives no material direct or indirect benefit from such transactions, which were undertaken in the ordinary course of business. For 2013, the amount paid to PolyOne from sales to Eaton was less than 0.3% of PolyOne’s consolidated revenues.serves.
Lead Director
Our independent Directors meet regularly in executive sessions. Our Corporate Governance Guidelines provide that the independent Directors are to select a Lead Director to preside at executive sessions. The Lead Director acts as the key liaison between the independent Directors and theMr. Patterson as Chairman of our Board and our Chief Executive Officer (“CEO”), and will also serve as the key liaison between the independent Directors and Mr. Newlin once he becomes Executive Chairman.. The Lead Director is also 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. Mr. HarnettFearon has served as our Lead Director since July 2007.May 2015.
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Board Leadership Structure
Mr. NewlinPatterson is the Chairman of our Board of Directors and our CEO. Effective as of May 15, 2014, Mr. Newlin will become Executive Chairman of our Board of Directors and Mr. Patterson will become President and CEO. The Board of Directors believes that this leadership structure is appropriate for our Company given the experience and active involvement of our independent Directors, our corporate governance practices and our Lead Director’s role. Having a Lead Director role helps to ensure greater communication between management and the independent Directors, increases the independent Directors’ understanding of management decisions and Company operations and provides an additional layer of independent oversight of PolyOne. The Board of Directors believes that this approach serves to strike an effective balance between management and independent Director participation in the board process.
Board’s Oversight of Risk
Our Board of Directors oversees a company-wide approach to risk management that is designed to support the achievement of our strategic objectives and improve long-term organizational performance, which we believe will ultimately enhance shareholder value. The Board of Directors believes that risk management is not only understanding the risks we face and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us as an organization.PolyOne overall.
Our Board of Directors administers its risk oversight function directly and through its Audit Committee and Environmental, Health and Safety Committee. The Audit Committee discusses with management our major financial risk exposures and the steps management has taken to monitor and control such exposures, including our risk assessment and risk management policies. The Audit Committee also receives an annual risk assessment report from our internal auditors. The Environmental, Health and Safety Committee periodically reviews with management the significant risks or exposures faced by PolyOne relating to safety, health, environmental, security and product stewardship standards and practices. Our Board
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oversees and monitors these committees in exercising their responsibilities relating to risk. Our Board also provides direct oversight on risk management as it relates to our capital structure, our borrowing and repayment of funds, financial policies, management of foreign exchange risk and other matters of financial risk management, including the utilization of financial derivative products, insurance coverage strategies, banking relationships and other financial matters.
Our Board of Directors sets the appropriate “tone at the top” when it comes to risk tolerance and management by fostering a culture of risk-adjusted decision-making throughout PolyOne.management. Our Board ensures that the risk management processes designed and implemented by our management team are adapted to the Board’s corporate strategy and are functioning as directed. The Board of Directors also participates in an ongoing effort to assess and analyze the most likely areas of future risk for the Company by asking our management team to discuss the most likely sources of material future risks and how we are addressing any significant potential vulnerability.
The Board as a group is regularly updated on specific risks in the course of Directorsits review of corporate strategy, business plans and reports to the Board by management and its respective committees. The Board believes that itscertain important categories of risk are assigned to committees that consist of independent Directors. These committees receive, review and evaluate management reports on risk, thereby preserving the benefit of independent risk oversight. The Board believes that the leadership structure supports the risk oversight function of theour Board of Directors, but that the risk oversight function otherwise has no effect onis appropriate given the Board’s leadership structure.oversight of risk as described above.
Code of Ethics, Code of Conduct and Corporate Governance Guidelines
In accordance with applicable NYSE listing standards and SEC 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 website at www.polyone.com, under “Corporate Governance” on our investor relations page.
Our Corporate Governance Guidelines contain a policy relating to majority voting. Pursuant to the policy, any nominee for election as a Director of the Board who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election in an election of Directors that is not a contested election is expected to tender his or her resignation as a Director to the Board promptly following the certification of the election results. Neither abstentions nor brokernon-votes will be deemed to be votes for or withheld from a Director’s election for purposes of the policy, regardless of the rules treating brokernon-votes as withheld in uncontested elections of Directors. The Nominating and Governance Committee (without the participation of the affected Director) will consider each resignation tendered under the policy and recommend to the Board whether to accept or reject it. The Board will then take appropriate action on each tendered resignation, taking into account the Nominating and
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Governance Committee’s recommendation. The Nominating and Governance Committee, in making its recommendation, and the Board, in making its decision, may consider any factors or other information that it considers appropriate, including the reasons (if any) given by shareholders as to why they withheld their votes, the qualifications of the tendering Director and his or her contributions to the Board and to PolyOne, and the results of the most recent evaluation of the tendering Director’s performance by the other members of the Board. The Board will promptly disclose its decision whether to accept or reject the Director’s tendered resignation and, if applicable, the reasons for rejecting the tendered resignation.
Communication with Board of Directors
Shareholders and other interested parties who wish to communicate directly with the Board of Directors as a group, thenon-management or independent 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” 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 we 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 our internal audit department and handled in accordance with procedures established by the Audit Committee for such matters.
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Board of Directors and Committees
Board Attendance
The Board met six times during 2013,2016, the calendar year being our fiscal year. Each member of our Board attended at least 75% of the meetings held by our Board and the meetings held by the committees of our Board on which such member served during the period for which he or she served as a Director. Each Director is expected to attend the Annual Meeting of Shareholders.Meeting. In 2013,2016, all of our Directors serving at that time attended the Annual Meeting of Shareholders.Meeting.
Board Committees
As of the date of this proxy statement, our Board has 11 Directors and the following four committees: Audit, Compensation, Nominating and Governance, and Environmental, Health and Safety. Each committee meets periodically throughout the year, reports its actions and recommendations to the Board, receives reports from senior management, annually evaluates its performance and has the authority to retain outside advisors in its discretion. The primary responsibilities of each committee are summarized below and set forth in detail in each committee’s written charter, which is located on our website atwww.polyone.com under “Corporate Governance” on our investor relations page.
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Audit Committee – Primary Responsibilities and Requirements | ||||
| Meets with appropriate financial and legal personnel and independent auditors to review our corporate accounting, internal controls, financial reporting and compliance with legal and regulatory requirements | NUMBER OF MEETINGS IN | ||
| Exercises oversight of our independent auditors, internal auditors and financial management | COMMITTEE
R.H. Fearon
S.B. Lin R.A. Lorraine (C) W.A. Wulfsohn | ||
| Appoints the independent auditors to serve as auditors in examining our corporate accounts | |||
| All members of the Audit Committee meet (1) the financial literacy and independence requirements as set forth in the NYSE listing | |||
| PolyOne’s common shares are listed on the NYSE and are governed by its listing standards |
C Chair of the Committee
F Meets the requirements of an “audit committee financial expert” as defined by the Securities and Exchange Commission (referred to as “SEC”).
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Compensation Committee – Primary Responsibilities and Requirements | ||||
| Reviews and approves the compensation and other benefits afforded our executive officers and other highly-compensated personnel, and has similar responsibilities with respect tonon-employee Directors, except that the Compensation Committee’s actions and determinations for | NUMBER OF MEETINGS IN | ||
| Works with PolyOne senior management in human resources, legal and finance departments | COMMITTEE MEMBERS:
W.H. Powell (C) K.J. Preete F.M. Walters W.A. Wulfsohn | ||
| Directly engages the resources of one or more independent outside compensation consultants to | |||
| Assesses the independence of its consultants | |||
| Oversees the process by which the Board annually evaluates the performance of the CEO | |||
| All members of the Compensation Committee have been determined to be independent as defined by the NYSE listing standards |
C Chair of the Committee
* In 2013, the Compensation Committee, assisted by2016, Willis Towers Watson (the “Consultant”), analyzed competitive market compensation data relating to salary, annual incentives and long-term incentives. In analyzing competitive market data, provided the Compensation Committee reviewed data from a peer group of similarly-sized United States chemical companies and reviewed data from the Consultant’s Compensation Data Bank and other published surveys. The Consultant then assisted the Compensation Committee in benchmarkingwith comparative compensation information with respect to base salaries and annual and long-term incentive targets.targets to provide the Compensation Committee with a general understanding of current compensation practices in the market. More detailed information about the compensation awarded to our executive officersNamed Executive Officers in 20132016 is provided in the “Compensation Discussion and Analysis” section of this proxy statement. The Consultant maintains regular contact with the Compensation Committee and interacts with management to gather the data needed to prepare reports for Compensation Committee review.
**The Compensation Committee periodically reviews the relationship with the Consultant including the level and quality of services provided, as well as fees for those services. In addition, expenses for other consulting services provided to PolyOne by the Consultant that are not related to executive compensation are monitored to ensure that executive compensation consultant independence is maintained. The Consultant provided us with services under $120,000 that were in addition to the services provided in connection with its advice and recommendations on the amount or form of executive and directorDirector compensation.
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The Compensation Committee considered all relevant factors, specifically including six consultant independence factors under Rule10C-1(b)(4)(i) through (vi) under the Securities Exchange Act of 1934 (referred to as the “Exchange Act”), in assessing the independence of the Consultant. The Compensation Committee reviewed each factor in depth, as well as information provided by the Consultant that related to and was responsive to each factor, which assisted in the assessment. Upon completing this assessment, the Compensation Committee also determined that that no “conflicts of interest have been raised by the work performed by the Consultant.”
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Nominating and Governance Committee – Primary Responsibilities and Requirements | ||||
| Identify individuals qualified to become Board members, consistent with criteria approved by the | NUMBER OF
| ||
● | Select, or recommend that the Board select, the | |||
● | Consider and recommend to the Board annual | COMMITTEE MEMBERS:
G.J. Goff R.A. Lorraine F.M. Walters | ||
● | Develop, review and recommend to the Board corporate governance guidelines applicable to PolyOne and directorship practices | |||
●
| Oversee the annual evaluation of the Board | |||
●
| All members of the Nominating and Governance Committee have been determined to be independent as defined by the NYSE listing standards | |||
| ||||
C Chair of the Committee
* The Nominating and Governance Committee will consider shareholder suggestions for nominees for election to our Board of Directors.Board. A shareholder that wishes to suggest a Director candidate for consideration by the Nominating and Governance Committee should follow the same procedures described for shareholder nominations for Director on page 2.in the “Proposal 1 – Election of Board of Directors” section of this proxy statement. The Nominating and Governance 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:
· | 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 our affairs; |
· | Substantial accomplishments with demonstrated leadership capabilities; |
· | Freedom from outside interests that conflict with our best interests; |
· | The diversity of backgrounds and experience each member will bring to the Board; and |
· | Our needs from time to time. |
The diversity of backgrounds and experience each member will bring to the Board of Directors; and
While neither the Nominating and Governance Committee nor thebelieves that having a diverse Board has a formal policy with respectleads to the consideration of diversity in identifying director nominees, they do consider diversity when evaluating potential Board nominees.more innovation, unique thinking and better governance. We consider diversity to include differences in race, gender and national origin, as well as differences in viewpoint, background, experience and skills. The Nominating and Governance Committee believes that having a diverse Board leads to more innovation, unique thinking and better governance. At the end of 2013, approximately 27% of our Board members were female; however, if all of our Board nominees are elected following our 2014 Annual Meeting of Shareholders, then this percentage will be 18%. Diversity is a key characteristic that we will consider, and instruct any third-party search firm we use to consider, in searches for future Board members.
The Nominating and Governance 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. The Nominating and Governance Committee has established these 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 Nominating and Governance Committee in the same manner as any other nominee for election to the Board. Finally, if the Nominating and Governance Committee determines that a candidate should be nominated for election to the Board, the Nominating and Governance Committee will present its findings and recommendation to the full Board for approval.
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CORPORATE GOVERNANCE
The Nominating and Governance Committee is responsible for ensuring that the Board evaluates its performance on an annual basis. The Director evaluation process includes self-evaluation of the Board as a whole and of each Board committee, as well as a peer evaluation. In addition, the Lead Director discusses overall Board effectiveness with each individual Director on an annual basis.
Environmental, Health and Safety Committee – Primary Responsibilities and Requirements | ||||
| The Environmental, Health and Safety Committee exercises oversight with respect to our environmental, health, safety, security and product stewardship policies and practices and our compliance with related laws and regulations | NUMBER OF MEETINGS IN
| ||
COMMITTEE MEMBERS: G.J. Goff (C)
R.M. Patterson K.J. Preete | ||||
C Chair of the Committee
Board Refreshment
The Nominating and Governance Committee is charged with reviewing the composition of the Board and refreshing the Board as appropriate. In the past five years, the Committee has brought on four new independent Directors. In terms of tenure, 46% of our Board has five or less years of service; 36% of our Board has five to ten years of service; and 18% of our Board has more than ten years of service. Our Corporate Governance Guidelines provide thatnon-employee Directors may not stand forre-election following the date of the Director’s 72nd birthday, although the Board may waive this limitation if it determines such waiver to be in the best interests of the Company. Further the Board annually assesses its effectiveness through a robust evaluation process, as described above.
| 38 |
NON-EMPLOYEE DIRECTOR COMPENSATION
2013 Non-Employee Director Compensation2016NON-EMPLOYEE DIRECTOR COMPENSATION
In the first halfthree quarters of 2013,2016, we paid ournon-employee Directors a retainer at an annual retainerrate of $165,000,$200,000 (payable in quarterly installments (inin arrears), consisting of a$90,000 in cash retainer of $75,000 and an award of $90,000$110,000 in value of fully vested common shares. In 2013,2016, the Compensation Committee analyzed competitive market compensation data provided by the Consultant relating to both the cash retainer and the equity award value. These compensation elements were benchmarked against PolyOne’s peer group as well as other applicablea general industries.industry group consisting of 140comparably-sized general industry (excluding financial services) companies with median revenues of approximately PolyOne’s size. This analysis demonstrated that the DirectorsDirectors’ compensation which had not been increased since 2011 (prior to our size increasing due to merger and acquisition activity), was nowslightly below the median of our peer group. As a result, and effective as of the thirdfourth quarter of 2013,2016, the Board increased the annual retainer rate to $185,000$210,000 (payable in arrears andquarterly installments in quarterly installments)arrears), consisting of $85,000$95,000 in cash and $100,000$115,000 in value of fully vested common shares, and increased Lead Director and committee member retainers as described below, to better align the Directors’ cash retainer and equity award value towith current market levels.
We pay individual meeting fees only as follows: $2,000 for each unscheduled Board and committee meeting attendedattended; and $1,000 for participation in each unscheduled significant telephonic Board and committee meeting. In addition, the Lead Director and chairpersons of the following committees receive the additional fixed annual cash retainers (payable on ain quarterly basisinstallments in arrears) listed below:
Role | Annual Cash Retainer First and Second | Annual Cash Retainer Third and Fourth Quarters, 2013 | ||
Lead Director | $25,000 | $25,000 | ||
Chair, Audit Committee | $15,000 | $16,000 | ||
Chair, Compensation Committee | $10,000 | $12,500 | ||
Chair, Environmental, Health and Safety Committee | $7,500 | $10,000 | ||
Chair, Nominating and Governance Committee | $7,500 | $10,000 |
below, which were not increased in 2016 with the exception of the Audit Committee Chair and Compensation Committee Chair retainers, which were increased effective as of the fourth quarter of 2016 as indicated below to align with the market median. We reimburse Directors for expenses associated with each meeting attended.
Role | Annual Cash Retainers January 1st– September 30th | Annual Cash Retainers As of October 1st | ||||||||
Lead Director | $25,000 | $25,000 | ||||||||
Chair, Audit Committee | $16,000 | $20,000 | ||||||||
Chair, Compensation Committee | $12,500 | $15,000 | ||||||||
Chair, Environmental, Health and Safety Committee | $10,000 | $10,000 | ||||||||
Chair, Nominating and Governance Committee | $10,000 | $10,000 |
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GOVERNANCE
Non-employee Directors may defer payment of all or a portion of their annual cash retainer under our Deferred Compensation Plan forNon-Employee Directors (“Deferred Compensation Plan”)., which was amended and restated effective May 20, 2014. Directors may also elect to have their cash retainer converted into our common shares. These shares, as well as the annual retainer consisting of fully vested common shares, may also be deferred under the Deferred Compensation Plan. In 2013,2016, we awarded shares to Directors under our Deferred Compensation Plan and our 2010 Equity and PerformanceLong-Term Incentive Plan (as defined herein). Deferred compensation, whether in the form of cash or common shares, is held in trust for the participating Directors. Interest is earned on the cash amounts and dividends, if any, on the deferred common shares are accrued for the benefit of the participating Directors.
2013 Non-Employee Directors2016 Director Compensation Table
Name | Fees Earned or Paid in Cash (b) ($) | Stock Awards (c) ($) | Total ($) | Fees Earned or Paid in Cash (a) ($) | Stock Awards (b) ($) | Total (c) ($) | |||||||||||||||
C.A. Cartwright | 89,750 | 95,000 | 184,750 | ||||||||||||||||||
R.H. Fearon | 96,500 | 95,000 | 191,500 | 126,250 | 111,253 | 237,503 | |||||||||||||||
G.J. Goff | 81,000 | 95,000 | 176,000 | 101,250 | 111,253 | 212,503 | |||||||||||||||
G.D. Harnett | 117,250 | 95,000 | 212,250 | ||||||||||||||||||
W.R. Jellison | 91,274 | 111,253 | 202,527 | ||||||||||||||||||
S.B. Lin | 53,184 | 61,621 | 114,805 | 91,250 | 111,253 | 202,503 | |||||||||||||||
R.A. Lorraine | 81,000 | 95,000 | 176,000 | 108,250 | 111,253 | 219,503 | |||||||||||||||
W.H. Powell | 89,750 | 95,000 | 184,750 | 104,375 | 111,253 | 215,628 | |||||||||||||||
K.J. Preete | 3,234 | 3,804 | 7,038 | 91,250 | 111,253 | 202,503 | |||||||||||||||
F.M. Walters | 82,000 | 95,000 | 177,000 | 91,250 | 111,253 | 202,503 | |||||||||||||||
W.A. Wulfsohn | 81,000 | 95,000 | 176,000 | 91,250 | 111,253 | 202,503 |
39 |
NON-EMPLOYEE DIRECTOR COMPENSATION
Fees Earned or Paid in Cash (column (b)(a))
Non-employee Directors may defer payment of all or a portion of their $75,000 annual cash retainer (payable on ain quarterly basis), which was increased to $85,000installments in the third quarter of 2013,arrears), as well as meeting and committee chairperson fees.fees, into the Deferred Compensation Plan. Fees are prorated based upon time served as a Director or committee chairperson in any applicable quarter.
Stock Awards (column (c)(b))
Ournon-employee Directors’ stock compensation consisted of an annual award (payable on ain quarterly basis) of $90,000, which was increased to $100,000installments in the third quarter of 2013, in valuearrears) of fully vested common shares, which the Directors could elect to defer. We determined the number of shares to be granted each quarter by dividing the applicable dollar value by the arithmetic average of the high and low stock price on the last trading day of each quarter.quarter and rounding to a whole share as partial shares are not issued. We used the following quarterly per share fair market values, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), in calculating the number of shares: March 28, 201331, 2016 — $24.185 (930$30.495 (902 shares); June 28, 201330, 2016 — $25.010 (899$34.995 (786 shares); September 30, 20132016 — $30.475 (820$33.770 (814 shares); and December 31, 20132016 — $35.215 (709$32.305 (890 shares). Shares areThe value of the stock award is prorated based upon time served as a Director in any applicable quarter.
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GOVERNANCE
Option Awards Outstanding and Fully-Vested Deferred Shares
The numberAs of December 31, 2016, there were no outstanding stock options held by each non-employee Director at the end of the fiscal year is set forth Directors, and no stock option exercises were conducted by our Directors in the following table. All of these options are fully exercisable. In addition, the2016. The number of fully-vested deferred shares held in an account for each Director at the end of the fiscal year is set forth below.below:
Name | Options Awards: (#) | Deferred Stock Awards: (#) | ||
C.A. Cartwright | - | 30,538 | ||
R.H. Fearon | - | - | ||
G.J. Goff | - | - | ||
G.D. Harnett | 6,000 | 99,605 | ||
S.B. Lin | - | 3,719 | ||
R.A. Lorraine | - | 50,033 | ||
W.H. Powell | - | 46,448 | ||
K.J. Preete | - | 108 | ||
F.M. Walters | 6,000 | 23,096 | ||
W.A. Wulfsohn | - | 10,892 |
Name | Deferred Stock Awards: Number of Deferred Shares(1) (#) | |
R.H. Fearon | - | |
G.J. Goff | - | |
W.R. Jellison | 7,688 | |
S.B. Lin | 14,588 | |
R.A. Lorraine | 61,436 | |
W.H. Powell | 51,457 | |
K.J. Preete | 9,659 | |
F.M. Walters | 16,961 | |
W.A. Wulfsohn | 20,841 |
(1) | Dividends paid on shares held in the Deferred Compensation Plan |
40 |
OWNERSHIP OF POLYONE SHARES
Beneficial Ownership of Our Common Shares
The following table shows the number of our common shares beneficially owned on March 1, 2014February 28, 2017 (including shares the individuals have a right to acquire within 60 days of that date) by each of our Directors, each of the executive officers named in the 20132016 Summary Compensation Table on page 36 (the “Named Executive Officers”)below and by all Directors and executive officers as a group.
Name | Number of Shares Owned(1) | Right to Acquire Shares | Total Beneficial Ownership | |||
Carol A. Cartwright | 155,261(2) | - | 155,261 | |||
Richard H. Fearon | 76,868 | - | 76,868 | |||
Gregory J. Goff | 10,778 | - | 10,778 | |||
Gordon D. Harnett | 171,663(2) | - | 171,663 | |||
Sandra B. Lin | 5,722 (2) | - | 5,722 | |||
Richard A. Lorraine | 50,033(2) | - | 50,033 | |||
William H. Powell | 100,723(2) | - | 100,723 | |||
Kerry J. Preete(3) | 108(2) | - | 108 | |||
Farah M. Walters | 150,543(2) | 6,000(4) | 156,543 | |||
William A. Wulfsohn | 10,892(2) | - | 10,892 | |||
Stephen D. Newlin | 197,704 | 17,560(5) | 215,264 | |||
Robert M. Patterson | 172,789 | 42,246(5) | 215,035 | |||
Bradley C. Richardson(3) | - | - | - | |||
Richard J. Diemer, Jr.(3) | 63,882 | - | 63,882 |
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GOVERNANCE
Name | Number of Shares Owned(1) | Right to Acquire Shares | Total Beneficial Ownership | |||
Thomas J. Kedrowski | 214,925 | 9,896(5) | 224,821 | |||
Kenneth M. Smith | 104,845 | 20,978(5) | 125,823 | |||
22 Directors and executive officers as a group | 1,700,496 | 167,888 | 1,868,384 |
Name | Number of Shares Owned(1) | Right to Acquire Shares | Total Beneficial Ownership | |||
Richard H. Fearon | 86,254 | - | 86,254 | |||
Gregory J. Goff | 20,164 | - | 20,164 | |||
William R. Jellison | 14,688(4) | - | 14,688 | |||
Sandra B. Lin | 16,592(4) | - | 16,592 | |||
Richard A. Lorraine | 61,436(4) | - | 61,436 | |||
Kim Ann Mink | (2) | (2) | (2) | |||
William H. Powell | 80,856(4) | - | 80,856 | |||
Kerry J. Preete | 16,347(4) | - | 16,347 | |||
Farah M. Walters | 165,405(4) | - | 165,405 | |||
William A. Wulfsohn | 20,841(4) | - | 20,841 | |||
Robert M. Patterson | 236,674 | 63,439(5) | 300,113 | |||
Bradley C. Richardson | 28,344 | 2,165(5) | 30,509 | |||
John V. Van Hulle | 2,945 | 31,537(5) | 34,482 | |||
Michael A. Garratt | 5,563 | 1,110(5) | 6,673 | |||
Craig M. Nikrant | 56,142 | 18,669(5) | 74,811 | |||
Stephen D. Newlin(3) | 249,224 | 43,117(5) | 292,341 | |||
23 Directors and executive officers as a group | 1,152,896 | 194,186(5) | 1,347,082 |
(1) | Except as otherwise stated in the following notes, 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 or other immediate family member of the |
(2) | Ms. Mink was elected to the Board of Directors on March 8, 2017 (after the date used in the table for determination of ownership). |
(3) | Mr. Newlin served as PolyOne’s Executive Chairman. Beneficial ownership information for the number of shares owned for Mr. Newlin is based on information contained in the last Form 4 with respect to PolyOne filed by him. |
(4) | With respect to the Directors, beneficial ownership includes shares held under the Deferred Compensation Plan forNon-Employee Directors as follows: |
(5) | Includes the number of shares that would be acquired if the individuals’ outstanding and exercisable stock-settled stock appreciation rights were exercised within 60 days of |
41 |
OWNERSHIP OF POLYONE SHARES
The following table shows information relating to all persons who, as of March 1, 2014,February 28, 2017, were known by us to beneficially own more than five percent of our outstanding common shares based on information provided in Schedule 13Gs and 13Ds filed with the SEC:
Name and Address | Number of Shares | % of Shares | ||||||
BlackRock, Inc. 40 East 52nd Street, New York, New York 10022(1) | 8,541,929 | 8.99% | ||||||
FMR LLC 82 Devonshire Street, Boston, Massachusetts 02109(2) | 7,755,544 | 8.16% | ||||||
The Vanguard Group, Inc. 100 Vanguard Boulevard, Malvern, Pennsylvania 19355(3) | 5,833,381 | 6.14% | ||||||
AllianceBernstein L.P. 1345 Avenue of the Americas New York, New York 10105(4) | 4,951,759 | 5.21% |
Page 15
GOVERNANCE
Name and Address | Number of Shares | % of Shares | ||||||
BlackRock, Inc. 55 East 52nd Street New York, New York 10022(1) | 9,492,569 | 11.3% | ||||||
The Vanguard Group, Inc. 100 Vanguard Boulevard Malvern, Pennsylvania 19355(2) | 6,734,132 | 8.03% |
(1) | As of December 31, |
(2) | As of December 31, |
Stock Ownership Guidelines forNon-Employee Directors
The purpose of our stock ownership guidelines (referred to as the “Guidelines”) is to better align our Directors’ financial interests with those of our shareholders by requiring our Directors to own a minimum level of our shares. In March 2014, we amended the Guidelines to more accurately reflect the market median multiple of salary for our Directors. This change was necessary because of the significant stock price appreciation that occurred since we last determined the Guidelines (in December 2012 at 22,000 shares). In order to reflect the Board’s commitment to share ownership, the required share ownership level fornon-employee Directors is now a minimum of 12,500 shares.
The Directors are expected to make continuing progress towards compliance with the Guidelines and to comply fully within five years of becoming subject to the Guidelines. For purposes of our Guidelines, the following types of share ownership and equity awards are included as shares owned: shares directly held,and indirectly held; shares and phantom shares held in our deferral plansplans; and restricted stock units. As of the date of this proxy statement, all Directors are either meeting, or are on track to meet, the Guidelines. All Directors are required to retain 100% of all shares obtained through us, as compensation for services provided to us, with such percentage to be calculated after any reduction in the number of shares to be delivered as a result of any taxes and exercise costs relating to the shares (if applicable). This requirement to retain 100% of all shares obtained from us ceases once the Director has met the Guidelines, as long as the Guidelines continue to be met. TheseSimilar policies, as they relate to our Named Executive Officers, are set forth in the “Compensation Discussion and Analysis”“Other Aspects of Our Compensation Programs” section of this proxy statement.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that certain of our officers, our Directors and persons who own more than 10% of a registered class of our equity securities file reports of ownership and changes in ownership with the SEC. These officers, Directors and greater than 10% shareholders are required by SEC 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 20132016 and until the date of this proxy statement, all Section 16(a) filing requirements applicable to those officers, Directors and 10% shareholders were satisfied.
Page 16
42 |
COMPENSATION
DISCUSSION AND ANALYSIS
EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Compensation Discussion and AnalysisExecutive Summary
Introduction
This section highlights significant Compensation DiscussionCommittee and Analysis (“CD&A”) describesCompany actions that occurred in 2016. In addition, it illustrates the principles underlying our executive compensation policies as well as our most important executive compensation decisions and practices for 2013. The following disclosure also gives context for the data we present inrelationship between the compensation tables below and the narratives that accompany the compensation tables.
The following six individuals areof our Named Executive Officers and how we measure Company performance. Our Named Executive Officers for 2013, as that term is defined by the SEC:2016 were:
Name | Title | |
| Chairman, President and Chief Executive Officer | |
| Executive Vice President, | |
| ||
| ||
| ||
| Senior Vice President, President of Color, Additives and |
Craig M. Nikrant | Senior Vice President, President of | |
Stephen D. Newlin | Former Executive Chairman |
Executive Summary
This section illustrates the relationship between our Named Executive Officers’ compensation and how we measure performance, and highlights significant Compensation Committee actions that occurred in 2013.
We are currently undergoing a leadership transition that we believe will position us to continue to deliver long-term value to our shareholders. Effective as of May 15, 2014, Mr. Newlin will retire as President and Chief Executive Officer and will become Executive Chairman. As of Mr. Newlin’s retirement, Mr. Patterson, who currently serves as our Executive Vice President and Chief Operating Officer, will become President and Chief Executive Officer. Because the leadership transition will take place in 2014, it did not affect which individuals qualified as Named Executive Officers for 2013.
How Pay is Tied to Company Performance. Our compensation programs are designed to: (1) attract and help retain talented executives; (2) reward employees for generating consistent improvement in Company performance; (2) attract and retain talented executives; and (3) align compensation with the interests of our shareholders andwith the ultimate goal of improving long-term shareholder value. We believe that executive compensation, both pay opportunities and pay actually earned, should be tied to Company performance. Weperformance, which we view Company performance in two primary ways:
· | The Company’s operating performance, including results against both our long-term and short-term growth targets; and |
· | Return to shareholders over time. |
How our compensation programs contribute to our Company’s operating performance, including results against our short-term and long-term goals; and
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COMPENSATION
success is described below.
Key 2013 Financial2016 Company Performance Results. PolyOne delivered outstandingRecord operating income in SEM, PPS and Distribution, along with lower share count, interest expense and taxes, contributed to a 20% and 9% increase in earnings per share and adjusted earnings per share respectively. However, and as described earlier and is evident in the chart below, company year-over-year sales and operating income performance results in 2013.was negatively impacted by both macroeconomic conditions and the integration challenges with DSS. The Compensation Committee believes that Mr. NewlinPatterson and our other Named Executive Officers have performed extremely well in a challenging global environment and that their compensation is commensurate with this performance. The chart below sets forth key Company results over the previous calendar year (dollar amounts below are in millions, except per share amounts).
Measure | 2012 | 2013 | Change | |||
Stock Price Per Share(1) | $20.42 | $35.35 | 73% | |||
Market Capitalization(2) | $1,820 | $3,400 | 87% | |||
Adjusted Earnings Per Share | $1.00 | $1.31 | 31% | |||
Adjusted Operating Income(3) | $191 | $262 | 37% | |||
Revenue(4) | $2,900 | $3,800 | 32% | |||
Organic Working Capital as a Percentage of Sales | 10.3% | 10.1% | (2%) |
Measure | 2015 | 2016 | Change | |||||||||
Revenue | $3,378 | $3,340 | -1% | |||||||||
Working Capital as a Percentage of Sales | 9.7% | 10.4% | -70 bps | |||||||||
Stock Price Per Share(1) | $31.76 | $32.04 | 1% | |||||||||
Earnings Per Share | $1.63 | $1.95 | 20% | |||||||||
Adjusted Earnings Per Share(2) | $1.96 | $2.13 | 9% | |||||||||
Operating Income | $250.9 | $281.9 | 12% | |||||||||
Adjusted Operating Income(2) | $322 | $317 | -2% |
(1) | Represents our closing stock price on the last trading day of the applicable fiscal year. |
(2) |
In addition, we have achieved seventeen consecutive quarters of strong double-digit adjusted earnings per share growth, with a compounded annual earnings per share percentage growth rate of 25% during this period. We attained a record-level year-end adjusted earnings per share of $1.31.
Following our acquisition of Spartech, a supplier of sustainable plastic sheet, color and engineered materials and packaging solutions, and through our aggressive integration efforts, we are already beginning to see the benefits of the acquisition. At the time of our acquisition, we estimated improving our earnings per share by $0.01 to $0.02 in 2013. Based on our early success in commercial and operational excellence efforts, as well as our aggressive efforts to eliminate duplicate company costs, we added $0.12 to our adjusted earnings per share in 2013.
43 |
COMPENSATION DISCUSSION AND ANALYSIS
Return to Shareholders.Delivering seventeen7 consecutive quartersyears of strong double-digit adjusted earnings per share expansion, along with regularly establishing new,driven by record levels of profit and profitability, has created shareholder value in excessvalue. This accomplishment was the result of the overall market. These accomplishments were driven by our aggressive goal setting and our relentless efforts to execute our well-defined four pillarproven four-pillar strategy of specialization, globalization, commercial excellence and operational excellence.
Note: Adjusted earnings per share and adjusted operating income for consolidated PolyOne differ from what is reported under United States GAAP. See Appendix A for a reconciliationPay-for-Performance: 2016 Compensation Outcomes. Our 2016 compensation results continued to reflect our objectivepay-for-performance philosophy of non-GAAPaligning executive compensation directly with our financial measures to our results as reported under GAAP.performance:
· | 2016 Annual Incentive Program:The 2016 Annual Incentive Program uses adjusted operating income, Working Capital as a Percentage of Sales and Revenue to drive desired behavior that impacts shareholder value.Our 2016 financial performance resulted in varying levels of achievement and, as a result, the Named Executive Officers participating in the 2016 Annual Incentive Program received a payout based on the attainment rates below. Mr. Garratt’s metrics changed during the year from PPS metrics to consolidated PolyOne metrics and, as a result, his 2016 payout was prorated based on his earnings under each respective metric. The description set forth in the “What We Pay and Why: Elements of Compensation” section of this proxy statement highlights the key financial results that were used in determining payouts to our Named Executive Officers under our 2016 Annual Incentive Program. |
Corporate Plan Attainment (Patterson, Richardson, Garratt) | 63.3% | |||
CAI Plan Attainment (Van Hulle) | 37.8% | |||
PPS Plan Attainment (Garratt) | 121.1% | |||
SEM Plan Attainment (Nikrant) | 41.1% |
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COMPENSATION
2013 Financial Results Under Incentive Plans and Pay-for-Performance. In line with our compensation program’s emphasis on pay-for-performance, compensation awarded to our Named Executive Officers for 2013 reflected PolyOne’s strong financial results. The chart below sets forth certain key financial results that were used in determining payouts under our short-term and long-term incentive compensation plans for 2013, as well as the payout percentages under each plan (dollar amounts are in millions, except for percentages and per share amounts).
Annual Plan | Measure | Weighting | 2013 Targets | 2013 Results | Payout % | |||||
Adjusted Operating Income | 50% | $239.3 | $272.5 | 194.9% | ||||||
Working Capital as a % of Sales | 25% | 10.5% | 10.0% | 191.4% | ||||||
Revenue | 25% | $3,773.4 | $3,827.8 | 113.9% | ||||||
Total Company Annual Plan Attainment | 173.8% | |||||||||
Long-Term Incentive Plan: Cash-Settled Performance Units | Measure | Weighting | 2011-2013 Target | 2011-2013 Result | Payout % | |||||
Cumulative Adjusted Earnings Per Share (2011-2013 performance period) | 100% | $2.79 | $3.65 | 200% |
All financial measures (Targets and Results) reported in the above table were calculated with adjustments for acquisitions, divestitures and special items pursuant to the terms of the plans and as approved by the Board of Directors.
Annual Incentive Plan:All of our Named Executive Officers earned payouts above their target 2013 Annual Plan opportunities, with an overall payout of 173.8% of target as a result of our strong fiscal 2013 performance.
Cash-Settled Performance Units:Cumulative adjusted earnings per share was the performance measure for this award in order to drive improvements in shareholder value. Our strong performance over the past three years led to a maximum payout (200% of target) for the cash-settled performance units granted to each Named Executive Officer under the 2011 – 2013 Long-Term Incentive Plan.
Stock-Settled Stock Appreciation Rights: We maintained stock price performance hurdle vesting requirements for the stock appreciation right (or “SAR”) awards granted as part of the 2013 – 2015 Long-Term Incentive Program to further align executive compensation with shareholder interests. The 2013 awards initially vest in one-third increments upon achieving each of the following stock price hurdles and maintaining them for thirty consecutive trading days: 10%, 15% and 20% increase respectively over the initial grant date closing stock price of $23.08. These hurdles were met in 2013. The SARs also are subject to additional time-based vesting requirements that lapse one-third on each of the first three anniversaries of the grant date.
Details regarding each of these incentive plans and payments are set forth in the “Analysis of 2013 Compensation Decisions and Actions” section of this proxy statement.
We are pleased with our accomplishments in 2013, and are well-positioned to continue our transformation into a high performing global specialty company. We believe our executive compensation programs described below and in the accompanying tables played a vital role in driving the strong financial results noted above, and appropriately align pay and performance.
· | 2014-2016 Long-Term Incentive Program:We used adjusted earnings per share as the performance measure for our 2014 – 2016 Long-Term Incentive Program cash-settled performance units in order to drive improvements in shareholder value. Due to strong performance over the past three years, the Named Executive Officers received a payout under this award based on 149% attainment. The description set forth in the “What We Pay and Why: Elements of Compensation” section of this proxy statement highlights the key financial results that were used in determining payouts to our Named Executive Officers for 2016. |
Listening to Shareholders. At the 20132016 Annual Meeting, of Shareholders, we held our third annual advisory vote on Named Executive Officer compensation. For the second consecutive year, 96%96.68% of the votes cast were in favor of this advisory proposal. The Compensation Committee reviewedconsidered the voting results as well as other input from conversations held with investors and considered this favorable outcome to conveyviewed them as continued support of our shareholder’s strong support for the Compensation Committee’s decisions and the existing executive compensation programs and practices.programs. As a result, the Compensation Committee made no material changes in the structure
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COMPENSATION
of our compensation programs orpay-for-performance philosophy based on the voting results for the proposal. At the 20142017 Annual Meeting, of Shareholders, we will again hold an advisory vote to approve the Named Executive Officer compensation. The Compensation Committee expects to consider the results from this year’s and future advisory votes on Named Executive Officer compensation.
Executive Compensation Practices and Programs. The executive compensation practices and programs described below and in the accompanying tables played a vital role in driving our strong financial results and aligning pay with performance for 2013,2016 and are designedintended to attract and help retain a highly experienced, successful team to manage PolyOne. Our practices and programs are directly linked to our key business objectives and are designed to create value for our shareholders.
Highlights of our practices and programs include:
| 44 |
COMPENSATION DISCUSSION AND ANALYSIS
We align shareholder interests with our executive compensation | ✓ | Ensure that the majority of executive pay is | ||
We avoid excessive risk while fostering sustainable Company growth
| ✓ | Utilize maximums on potential payments, include retention vehicles in our compensation programs, provide multiple performance targets and maintain robust Board and management processes to identify risk, which | ||
| Stock | |||
|
| |||
We | ✓ | No excise taxgross-up | ||
✓ | Adopted a clawback policy applicable to all executive officers | |||
✓
| Prohibit Named Executive Officers The Compensation Committee uses an independent consultant to | |||
✓ | Provide for minimum required vesting periods for our equity awards. SARs generally may not vest solely by the passage of time sooner thanone-third per year over three years, and RSUs with a restriction period that lapses solely by the passage of time generally will have a restriction period of at least three years, except that the restriction period may expire ratably during the three-year period. Performance-based awards generally will have a performance period of not less than one year. | |||
|
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COMPENSATION
2013 2016Pay-for-Performance Analysis. As described more fully below, we believe that the majority of each Named Executive Officer’s compensation should be linked directly to our performance and the creation of shareholder value. The following chart compares cumulative total shareholder return (“TSR”) on our common shares against the cumulative total return of the S&P 500 Index and the S&P Mid Cap Chemicals Index for the five-year period December 31, 20082011 to December 31, 2013,2016, assuming in each case a fixed investment of $100 and reinvestment of all dividends. Starting in 2009, ourOur performance during this period has significantly exceeded the S&P 500 Index as well as the S&P Mid Cap Chemicals Index.
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COMPENSATION DISCUSSION AND ANALYSIS
Comparison of Cumulative Total Return to Shareholders
We believe that the returns to shareholders shown in the graph above graph indicate that ourpay-for-performance philosophy, compensation plan design and selected metricsperformance measures are working, and have resulted in performance that has provided increased value to our shareholders over both the short and long-term.long-term as shown above.
We also believe that the compensation of our Named Executive Officers has been commensurate with our performance results. Since he joined PolyOne in 2006 as its CEO, Mr. NewlinThe Company has been highly effective at driving margin growth in the transformation of PolyOne to a high performing global specialty company. By refocusing the sales force on value and profits versus volumes, and emphasizing specialty businesses versus those more commodity in nature, Mr. NewlinPatterson and hisour senior management team have driven substantial earnings growth.
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COMPENSATION
More recent performance in the CAI, SEM and PPS segments has been offset by the aforementioned macro-economic headwinds, as well as underperformance by our Designed Structures and Solutions segment. This has resulted in lower share price appreciation in the last two years, and as a result, lower compensation for Mr. Patterson.
The followingbelow graph provides athis recent historical perspective, comparing Mr. Newlin’s earned compensationPatterson’s pay (as disclosed in the Summary Compensation Table for 2014, 2015 and 2016) and our performance to thepay-for-performance of our peer group from 2010-2012 (datafor 2014-2016 (for TSR) and timing limitations prohibit us from providing a 2013 analysis at this time)2013-2015 (for pay). As the graph indicates, Mr. Newlin’s earnedPatterson’s Summary Compensation Table compensation has been alignedis in line with our recent performance with his earned compensation approximating the 75th percentileover this period of our peers while our performance as defined below, was at the 100th percentile.time.
Peer Group Pay vs. Performance Analysis
3-Year CEO SCT Pay
2014 - 2016 TSR Performance %ile
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COMPENSATION DISCUSSION AND ANALYSIS
For purposes of this graph, pay is defined as the three-year (2010-2012) sum of Summary Compensation Table pay for all applicable elements including base salary, earned annual incentives, thestock and option awards at grant value, of stock awards upon vesting, the value of option/SAR exercises,non-equity incentive plan compensation and earned long-term cash incentives.all other compensation. Three-year performance is based on three-year TSR (2010 – 2012)(2014-2016). The peers used in this graph include those used for 2016 compensation decisions and listed on page 23in the “Executive Compensation Philosophy and Objectives” section of this proxy statement.
Executive Compensation Philosophy and Objectives
Our executive compensation programs reward our officers’ performance, and are specifically linked to our achievement of strategic operating and financial goals, and are designed to be competitive in the marketplace. OurWe reward our executives are rewarded for performance that meets or exceeds our strategic goals, without encouraging excessive risk-taking that could have a detrimental impact on our long-term results and the interests of our shareholders. We believe the design of our compensation plans and the relative mix of compensation elements successfully motivate our executives to improve our overall corporate performance and the profitability of the specific business unit(s) for which they are responsible, thus maximizing shareholder value. The main objectives of our executive compensation programs are to:
· | Attract, motivate and help retain a highly qualified and successful management team to lead PolyOne in setting and effectively executing upon our strategic goals and objectives; |
· | Foster apay-for-performance culture by rewarding the achievement of specified strategic operating and financial objectives that maximize shareholder value; and |
· | Help ensure our goals and objectives are aligned with the interests of our shareholders by recognizing and rewarding business results and the growth of our stock price through incentive programs. |
Setting 2013 Executive Compensation Levels
Compensation Consultant
Consultant.Our executive compensation programs are approved and overseen by the Compensation Committee, which is composed entirely of independent Directors. For 2013, theThe Compensation Committee retained the Consultant in 2016 to assist with
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COMPENSATION
assessing the competitiveness and overall appropriateness of our executive compensation programs. The Compensation Committee worked with the Consultant and considered input from members of senior management to help ensure that our executives, including our Named Executive Officers, receive market competitive compensation programs that reward business results.
As described below, the Consultant assisted the Compensation Committee by (1) benchmarkingproviding comparative compensation information so we could alignconsider base salaries, as well as annual incentive targets and long-term incentive targets with our competitivein the context of a general understanding of current compensation practices in the market, pay philosophy discussed below, (2) providing guidance on incentive plan design, (3) monitoring and communicating trends in executive compensation to the Compensation Committee, (4) assisting with our proxy statement disclosure,disclosures and (5) assessing Board of Directors’ compensation and (6) evaluating executive retirement benefits.our Board’s compensation.
Competitive Market Pay Information and Benchmarking
Information.We designed our compensation programs to be competitive with companies of comparable size and industry with whom we compete for executive talent. We annually analyzereview competitive market compensation data annually relating to salary, annual incentives and long-term incentives. The Compensation Committee generally manages individual components of compensationrecognizes that over-reliance on benchmarking and initially targets total compensation relative toexternal comparisons is not prudent, and the median (50th percentile)Compensation Committee is mindful of the competitivevalue and limitations of comparative data. As a result, although the Compensation Committee includes market data. However,data and its general understanding of current compensation practices in the market in the overall mix of factors it considers in assessing Named Executive Officer compensation, it does not target specific market levels. Rather, the Compensation Committee considers other factors consisting ofas well, such as the responsibilities, performance, contributions and experience of each Named Executive Officer and compensation in relation to other employees, to determine final total compensation amounts. As a result, we do not set total direct compensation or the component parts at levels to achieve a mathematically precise market position. For 2013, Mr. Newlin’s compensation was set above the market median, which is aligned with Company performance and Mr. Newlin’s skills and experience. We also periodically analyze competitive compensation market data relating to retirement benefits and other benefits. The Compensation Committee also obtains advice and recommendations from the Consultant in theseregarding retirement benefits and other areas of total compensation.
In analyzingreviewing competitive market data for the purpose of determining the market median for 2013,2016, we drew from threetwo independent sources. We first reviewed proxy statement disclosures of a peer group ofsimilarly-sized United States chemical and plastics companies as a market check with respect to establish an estimate of marketthe compensation for our senior executives. This approach provided insight into specificcurrent compensation practices at business competitors or companies facing similar operating challenges.
In recent years we refined our peer group to reflect our progress toward becoming a global specialty company. In March 2013, we evaluated our current peers and other potential peers, giving specific consideration to the following factors:
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COMPENSATION DISCUSSION AND ANALYSIS
We annually evaluate the composition of our compensation peer group, giving specific consideration to company size, global presence, and specialty chemical focus. We also lookedlook at the frequency with which these companies were used as peers by other companies in our industry and which companies had identified PolyOne as a peer. Financial and operating statistics for our peer and whether each potential peer company had a global presence and a specialty chemical focus. In addition, we considered whether each company was in the same Standard Industrial Classification code as PolyOne and whether we compete with them for talent. group referenced during 2016 compensation decisions are summarized below:
Factor | Median Peer Group Comparator 2015 Financials | 2016 PolyOne Results | ||
Company Revenue | $3.4 billion | $3.3 billion | ||
Total Asset Size | $4.4 billion | $2.7 billion | ||
Employee Numbers | 7,000 | 7,000 |
Each of the companies recommended forconstituting our peer group for 2016 compensation consideration met a majority of the primary criteria that were established. Based on this review, we included Ashland, Inc. and Celanese Corporation and retained all other companies, suchdetermined that PolyOne’s currentthe existing compensation peer group consistswas appropriate for 2016 compensation consideration and thus remained unchanged from the previous year. The group consisted of the following 1817 companies:
PolyOne Peer Group for 2016 Compensation Decisions | ||||
Albemarle Corporation | Cytec Industries Inc.* | International Flavors & Fragrances Inc. | ||
A. Schulman, Inc. | Eastman Chemical Company | |||
Ashland Global Holdings Inc. | Ecolab, Inc. | |||
Axiall Corporation | Ferro Corporation | The Scotts Miracle-Gro Company | ||
Cabot Corporation | FMC Corporation | |||
Celanese Corporation | H.B. Fuller Company |
* Cytec Industries Inc. and Sigma Aldrich Corporation were acquired during 2015 and have been removed from the peer group for 2017 compensation consideration and beyond.
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COMPENSATION
While the above companies were used to gain an understanding of current compensation practices for 2016, the peer group was subsequently changed in July 2016 for compensation consideration for 2017. Ecolab, Inc. and Ferro Corporation were removed from the peer group, and Avery Dennison Corporation, Hexcel Corporation and Trinseo S.A. were added to the peer group, based on a determination that the newly-added companies are more comparable in size to the Company while meeting the majority of the primary criteria that were established for our peer group.
The second and third independent sourcessource of data that we used to augment the peer proxy analysis was the Consultant’s analysis of competitive market data relating to (1) the broader chemical industry and (2) other applicable general industries usingindustries. The Consultant specifically used the following surveys: the Consultant’s executive compensation database,database; the Consultant’s Top Management Compensation SurveySurvey; and Mercer’s Executive Compensation Survey. To obtain comparability based on company size, the Consultant’s analysis either referenced a specific sample ofcomparably-sized companies or calibrated the pay of a broad sample of companies against company size. The specific identity ofPolyOne did not select the companies that comprise any of these survey groups, and the component companies’ identities were not a factor in these surveys was not material to our use of the comparability data based on this process used by the Consultant.analysis.
Review of 20132016 Named Executive Officer Compensation
. Management and the Compensation Committee annually review the specific pay disclosures of our peer group and the broad-based survey data provided by the Consultant. Management uses this data to develop recommendations for the Compensation Committee’s review regarding eligibility and award opportunities as well as performance measures and goals for theour long-term and short-term incentive plan performance periodsplans commencing in the following year. The Compensation Committee also considers this information when making compensation decisions and aligning each of the pay elements with our compensation objectives and relative market practices.objectives.
The Compensation Committee and management annually review and consider tally sheets, which are developed by our Human Resources department and reviewed by the Consultant, to determine the reasonableness ofprovide greater context for the compensation of our Named Executive Officers. The tally sheets provide information regarding each Named Executive Officer’s base salary, annual incentives, and long-term incentives, other benefits, retirement benefits and wealth accumulation.are reviewed by the Consultant.
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COMPENSATION DISCUSSION AND ANALYSIS
Annually, the CEO recommends, for the Compensation Committee’s review and approval, specific base salary and incentive target incentiveopportunity adjustments for the other Named Executive Officers other than himself, if an adjustment is warranted. The CEO makes his recommendations in conjunction with the marketplace data and input provided by the Consultant.data. He does not participate in any discussions with the Compensation Committee involving his own compensation. With guidance from the Consultant regarding market pay levels and based on a rigorous review of 20122015 performance and our compensation philosophy, the Compensation Committee determined the appropriate pay levels for the CEOMr. Patterson for 2013.2016.
2013What We Pay Mixand Why: Elements of Compensation
Our executive compensation programs are designed to recognize an executive’s scope of responsibilities, leadership ability and effectiveness in achieving key performance goals and objectives. As an executive’s level of responsibility within PolyOne increases, so does the percentage of total compensation that is linked to performance in the form of variable compensation.
Thus, the majority of the total direct compensation is performance-based and not guaranteed. We also provide threevarious retirement and benefit programs and modest, business-related benefits. The chart below provides a picture of all elements of the total direct compensation that are discussed in detail below: base salary; annual incentive compensation; and long-term incentive compensation. The following table summarizes the allocation of the compensation opportunity at target, or “pay mix,” that was granted in 2013provided to theour Named Executive Officers based upon their three elements of compensation. Both the(also referred to as NEOs), except for Mr. Newlin as he was not eligible for either an annual incentive opportunity andor long-term incentive opportunity representin 2016 per the variableterms of his Letter Agreement. Detailed information follows the chart below.
While the Compensation Committee does consider comparative compensation portioninformation to gain a general understanding of each Named Executive Officer’s totalcurrent compensation opportunity,practices in the market, it does not benchmark or ultimately target a specific percentile or data point in assessing competitiveness for base pay or our incentive programs. Individual opportunities vary based on length of time with PolyOne, individual performance and level of leadership responsibility within the Company. This strategy is consistent with our overall pay-for-performance philosophy.
Target Pay Mix Allocation | ||||||||||||
Named Executive Officer | Base Salary % | Annual Incentive % | Long-Term Incentive % | |||||||||
S.D. Newlin | 18% | 20% | 62% | |||||||||
R.M. Patterson | 31% | 22% | 47% | |||||||||
B.C. Richardson | 33% | 22% | 45% | |||||||||
R.J. Diemer, Jr. | 39% | 23% | 38% | |||||||||
T.J. Kedrowski | 39% | 22% | 39% | |||||||||
K.M. Smith | 39% | 22% | 39% |
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Analysiscompetitive market pay philosophy discussed in the “Executive Compensation Philosophy and Objectives” section of 2013 Compensation Decisions and Actionsthis proxy statement.
Base Salary
We pay base salaries to attract talented executives and to provide a fixed base of cash compensation.. Base salaries for theour Named Executive Officers in 2016 were individually determined by the Compensation Committee after consideration of:
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There are three situations that may warrant an adjustment to base salary:
Annual Merit Increase. All employees’ base salaries are reviewed annually for possible merit increases taking into account the above listed factors, but merit increases are not automatic or guaranteed. In recognition of the significant role Mr. Newlin played in transforming PolyOne into a high-performing organization, as well as his strong leadership, particularly in light of recent merger and acquisition activity, and after a review of competitive market data, the Compensation Committee approved a seven percent adjustment to his annual base salary for 2013, as outlined in the below table. In the Compensation Committee’s judgment, this base salary is appropriate in order to fairly compensate and retain Mr. Newlin. The Compensation Committee also increased the annual base salaries of each of the other Named Executive Officers (excluding Mr. Kedrowski) in accordance with market pay levels, trends around merit increases and individual specific roles and responsibilities, as outlined below.
Promotion or Change in Role. Base salary may be increased to recognize additional responsibilities resulting from a change in an employee’s role or a promotion to a new position; however, increases are not guaranteed. In recognition of his many contributions to date and as well as the increased responsibilities he assumed in connection with PolyOne’s acquisition of Spartech, the Compensation Committee approved Mr. Kedrowski’s promotion to Executive Vice President, Global Operations and Process Improvement with an increase in annual base salary to $400,000.
Market Adjustment. A market adjustment may be awarded to an individual who is performing successfully when we recognize a significant gap between the market data and the individual’s base salary. No Named Executive Officer received a market adjustment in 2013.
The below table lists the 2013 base salaries that were approved by the Compensation Committee for the Named Executive Officers, as well as the applicable percentage increase from the 2012 base salaries.
Named Executive Officer | 2012 Base Salary | 2013 Base Salary | % Change | |||
S.D. Newlin(1) | $980,000 | $1,050,000 | 7% | |||
R.M. Patterson(1) | $515,000 | $551,000 | 7% | |||
B.C. Richardson(2) | N/A | $520,000 | N/A | |||
R.J. Diemer, Jr.(1) | $435,000 | $455,000 | 5% | |||
T.J. Kedrowski(3) | $356,000 | $400,000 | 12% | |||
K.M. Smith(1) | $365,000 | $380,000 | 4% |
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COMPENSATION DISCUSSION AND ANALYSIS
Based onAfter consideration of the competitive market data provided byfactors above, the Consultant, we determined thatCompensation Committee made the 2013following decisions related to base salaries of thefor our Named Executive Officers in 2016: Mr. Patterson’s base salary was increased from $900,000 to $950,000; Mr. Richardson’s base salary was increased from $557,000 to $565,000; Mr. Van Hulle’s base salary was increased from $449,000 to $455,000; Mr. Garratt’s base salary was increased from $385,000 to $405,000 (to also reflect his new responsibilities as Chief Commercial Officer); and Mr. Nikrant’s base salary was increased from $405,000 to $420,000. Mr. Newlin’s base salary remained consistent at $655,850 in accordance with the terms of his Letter Agreement.
For Messrs. Patterson, Richardson, Van Hulle, Garratt and Nikrant, the amounts listed above were within a range of 11% abovebase salaries in effect on December 31, 2015 and 5% belowDecember 31, 2016, respectively, and the 2013 market medians for comparable positions, which is consistent with our competitive market pay philosophy discussedactual salary received by each as shown in the “Competitive Market Pay Information and Benchmarking” section2016 Summary Compensation Table of this proxy statement.statement was prorated based on base salary rates in effect before and after the effective dates of the changes. For Mr. Newlin the amount listed above was the base salary in effect on December 31, 2015 and at the time of his retirement.
Annual IncentiveIncentive.
We payprovide an annual incentive opportunity in accordance with our Annual Plan to (1) reward our Named Executive Officers for achieving specific performance objectivesgoals that would advance our profitability;profitability, (2) drive key business results;results, and (3) recognize individuals based on their contributions to those results. The below table lists the 2013Named Executive Officers’ 2016 individual annual incentive opportunities (expressed as a percentage of base pay) that were approved by the Compensation Committee and effective for the 2016 Annual Incentive Program are: Mr. Patterson – 115%; Mr. Richardson – 65%; and Messrs. Van Hulle, Garratt and Nikrant – 55%. Mr. Newlin did not receive a 2016 annual incentive award per the terms of his Letter Agreement. Mr. Patterson’s annual incentive opportunity was increased from 100% to 115% in 2016 to reflect his tenure in the position. The annual incentive opportunities for the other Named Executive Officers which arestayed the same as the 2012 individual annual incentive opportunities (for those who were serving in 2012).
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Based on the competitive market data provided by the Consultant, we determined that the 2013 Annual Plan opportunities for the Named Executive Officers were within a range of 10% above to 8% below the 2013 market median for comparable positions, which is consistent with our competitive market pay philosophy discussed in the “Competitive Market Pay Information and Benchmarking” section of this proxy statement.2016.
The Compensation Committee determined, after a thorough evaluation of possible plan designs and performance measures (described below), that we would maintain the same fundamental Annual Planannual incentive design in 2013 as2016 that we used in 2012, however, we added a revenue performance measure to encourage profitable sales growth.2015. The Compensation Committee’s evaluation demonstrated that thesethe performance measures utilized for this program are the most critical elements of PolyOne’s performance for both 2012 and 20132016 and, when combined, contribute to sustainable growth.
The 20132016 Annual PlanIncentive Program performance measures are described below.below:
Adjusted Operating Income. Adjusted operating income is defined as business unit and/or total Company operating income excluding special items |
Revenue. Revenue represents business unit sales or total Company net trade sales to third parties. |
Working Capital as a Percentage of Sales. Working |
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COMPENSATION DISCUSSION AND ANALYSIS
The 2013payouts under the 2016 Annual Incentive Program are based on attainment with respect to target goals set for each individual performance measure. Rewardable attainment with respect to these performance measures ranges from 50% (threshold) to 200% (maximum) of goal. If achievement with respect to any performance measure falls between the threshold and target, or between the target and maximum, earned award amounts for that particular performance measure will be interpolated on a straight-line mathematical basis. If achievement with respect to any performance measure does not reach threshold, then that measure will be deemed to have 0% attainment. The Compensation Committee did approve a change to the weightings of the adjusted operating income and Working Capital as a Percentage of Sales performance measures in 2016 from 50% and 25% to 60% and 15%, respectively. The performance measures for the 2016 Annual Incentive Program were weighted as outlined in the charts below.
Corporate Annual Plan Weightings | Business Unit Annual Plan Weightings | |
The Annual Plan, as it relates to the Named Executive Officers, were based upon PolyOne’s consolidated results and were weighted as follows:
contains a “negative discretion” feature. If at least the threshold attainment level is achieved for any performance measure, then Named Executive Officers are eligible for payments up to the maximum permitted under the Annual Plan provisions. Payouts are capped at 200% of a participant’s award amount at target. The Compensation Committee may use its negative discretion to make a final determination of the amount to be paid.
We set aggressive Annual Plan performance goals in 20132016 under the 2016 Annual Incentive Program that focused our efforts on those factors that we believed were critical to our ongoing success, including profitablerevenue growth, earnings improvement, cash generation from working capital, efficiencies in our operations and the continued implementation of our overall four pillar strategy.
Our 2013 operating incomestrategy of globalization, specialization, commercial excellence and operational excellence. The 2016 performance goals were aggressive andfor our performance measures were set in accordance with our strategic plan framework. On a consolidated basis, our performance and results under the total Company adjusted operating income metric were strong; adjusted operating income exceeded the Annual Plan’s target goal by 14% in 2013. The Company adjusted operating income incentive goal attainment was 194.9% of our target performance level. We viewed the targeted level of performance for this metriceach measure as very challenging to achieve,achieve. The target goals and attainment levels for each Named Executive Officer are set forth below (dollars in millions). Progress against the actual levelWorking Capital as a Percentage of performance reflects exceptional results.
The 2013Sales metric is reflected by lower levels of working capital, so results that are less than target are viewed as a percentage of sales performance goalsexceeding target performance.
Mr. Patterson’s and Mr. Richardson’s 2016 Annual Incentive Program opportunities were set in accordance with our strategic plan framework and were intended to maintain our strong working capital performance. In 2013, we were able to sustain our strong performance from the previous year by maintaining a world-class performance working capitalbased on consolidated results. Mr. Garratt, who had previously served as a percentage of sales with an Annual Plan result of 10.0%.Senior Vice President, PPS, was named as Senior Vice President, Chief Commercial Officer on April 18, 2016. As a result, a portion of this performance,Mr. Garratt’s 2016 Annual Incentive Program opportunity, representing the working capital as a percentage of sales incentive goalperiod from April 18, 2016 through December 31, 2016, is based on consolidated results. Total attainment was 191.4% of our target performance level.
As noted above, the 2013 Annual Plan introduced revenue as a performance measure in order to encourage profitable revenue growth. The 2013 revenue performance goals were set in accordance with our strategic plan framework. Revenue increased 32% from 2012, driven by solid second half top-line organic growth and the acquisitions of Spartech and Glasforms. The revenue incentive goal attainment was 113.9% of our target performance level.
The Annual Plan, as it relates to the Named Executive Officers, contains a “negative discretion” feature. If threshold attainment levels are attained, Named Executive Officer’s are eligible for payments up to the maximum permittedconsolidated PolyOne under the plan provisions. The Compensation Committee may use its discretion to make a final determination2016 Annual Incentive Program was 63.3%, with the components consisting of the amount to be paid. Payouts are capped at 200% of a participant’s award amount at target. The performance measures and targets, and the respective levels of achievement for each performance measure under the 2013 Annual Plan for our Named Executive Officers are set forth below.(dollars in millions):
2016 Corporate Plan (Patterson, Richardson, Garratt) | ||||||||
Measure | Weighting | Target | Results | Payout% | ||||
Adjusted Operating Income | 60% | $336.7 | $317.2 | 55.5% | ||||
Revenue | 25% | $3,474.3 | $3,339.8 | 0% | ||||
Working Capital as a % of Sales | 15% | 10.9% | 10.4% | 200% | ||||
Total Attainment | 63.3% |
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COMPENSATION DISCUSSION AND ANALYSIS
2013 Goals | ||||||||||||
Performance Measure ($ in millions) | 2012 Actual Result(1) | Threshold 50% | Target 100% | Maximum 200% | 2013 Actual Result | 2013 Payout as % of Target | ||||||
Company Adjusted Operating Income | $221.0 | $221.4 | $239.3 | $274.3 | $272.5 | 194.9% | ||||||
Consolidated Working Capital as a Percentage of Sales | 9.9% | 11.1% | 10.5% | 9.9% | 10.0% | 191.4% | ||||||
Revenue | N/A(2) | $3,577.3 | $3,773.4 | $4,157.5 | $3,827.8 | 113.9% |
Mr. Van Hulle’s, Mr. Nikrant’s and the remaining portion of Mr. Garratt’s 2016 Annual Incentive Program opportunities were based on business unit-specific results and, while the adjusted operating income performance goals for such opportunities were weighted 60% overall, the opportunities were basedtwo-thirds on business unit-specific results andone-third on consolidated PolyOne adjusted operating income results.
For Mr. Van Hulle, whose 2016 results were based on the CAI Plan, total attainment was 37.8%, with the components consisting of:
2016 CAI Plan (Van Hulle) | ||||||||
Measure | Weighting | Target | Results | Payout % | ||||
Adjusted Operating Income (Business Unit) | 40% | $145.7 | $125.0 | 0% | ||||
Adjusted Operating Income (Consolidated) | 20% | $336.7 | $317.2 | 55.5% | ||||
Revenue (Business Unit) | 25% | $831.9 | $793.6 | 0% | ||||
Working Capital as a % of Sales (Business Segment) | 15% | 10.4% | 10.0% | 178.1% | ||||
Total Attainment | 37.8% |
For Mr. Garratt, whose 2016 results were partially based on the PPS Plan, total attainment was 121.1%, with components consisting of:
2016 PPS Plan (Garratt) | ||||||||
Measure | Weighting | Target | Results | Payout % | ||||
Adjusted Operating Income (Business Unit) | 40% | $65.4 | $74.4 | 200% | ||||
Adjusted Operating Income (Consolidated) | 20% | $336.7 | $317.2 | 55.5% | ||||
Revenue (Business Unit) | 25% | $720.7 | $668.3 | 0% | ||||
Working Capital as a % of Sales (Business Segment) | 15% | 6.2% | 5.8% | 200% | ||||
Total Attainment | 121.1% |
The actual amounts earned byFor Mr. Nikrant, whose 2016 results were based on the Named Executive OfficersSEM Plan, total attainment was 41.1%, with the components consisting of:
2016 SEM Plan (Nikrant) | ||||||||
Measure | Weighting | Target | Results | Payout % | ||||
Adjusted Operating Income (Business Unit) | 40% | $90.2 | $80.4 | 0% | ||||
Adjusted Operating Income (Consolidated) | 20% | $336.7 | $317.2 | 55.5% | ||||
Revenue (Business Unit) | 25% | $593.8 | $558.4 | 0% | ||||
Working Capital as a % of Sales (Business Segment) | 15% | 12.0% | 11.4% | 200% | ||||
Total Attainment | 41.1% |
Mr. Newlin was not eligible for a payout under the 2016 Annual Incentive Program per the terms of his Letter Agreement.
All 2016 Annual Incentive Program awards have been made in accordance with the Annual Plan, for 2013 are set forthwhich was unanimously approved and adopted by our Board on March 6, 2015 and approved by shareholders at the Annual Meeting in May 2015. For information regarding the “Non-Equityultimate payouts under the 2016 Annual Incentive Plan Compensation” column ofProgram, see the 20132016 Summary Compensation Table. The Annual Plan, as it applies to the Named Executive Officers, was designed to permit compliance with Code Section 162(m). A more detailed discussion of Code Section 162(m) appears in the “Tax Considerations” section of this proxy statement.
Long-Term IncentiveIncentive.
We provide performance-based long-term incentive compensation to certain of our executives, including the Named Executive Officers to directly tie the interests of these individuals to the interests of our shareholders. We also believe that long-term incentive compensation is an important retention tool. AtOn March 6, 2015, our Board unanimously approved and adopted the Long-Term Incentive Plan which was approved by shareholders at the Annual Meeting in May 2010, our shareholders approved the 2010 Equity and Performance Incentive Plan (referred to as the “2010 Plan” or the “Long-Term Incentive Plan”) under which we can provide2015. The 2016 long-term incentive program awards were granted under the Long-Term Incentive Plan.
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COMPENSATION DISCUSSION AND ANALYSIS
The individual long-term incentive target opportunities provided to our executives. At the Annual Meeting in May 2012, our shareholders approved the First Amendment to the 2010 Plan (referred to as the “Amended 2010 Plan”). The 2013 Long-Term Incentive Plan grants were awarded under the Amended 2010 Plan.
Individual Long-Term Incentive Plan targets,Named Executive Officers, which are reflected as a percentage of base salary, are established with consideration of our competitive market pay philosophy discussed in the “Competitive Market Pay Information“Executive Compensation Philosophy and Benchmarking”Objectives” section of this proxy statement and are intended to reward the Named Executive Officers for achieving specific performance objectives. The Long-Term Incentive Plan awards granted for 20132016 under the Long-Term Incentive Plan are based upon our closing stock price on December 31, 2012.2015. The accounting value of each award is determined using the grant date of the award. The value of the grant varies as the stock price increases or decreases in the interim.
The below table listsCompensation Committee approved the 2013 Long-Term Incentive Planfollowing decisions with respect to the individual long-term incentive opportunities that were approved by the Compensation Committee forof the Named Executive Officers for 2016, which were in effect as well asof February 10,2016 (the grant date of our annual long-term incentive awards): Mr. Patterson’s opportunity was increased from 325% to 350% to reflect his increasing experience in the applicable percentage increase fromCEO role; Mr. Richardson’s opportunity continued to be 135%; and Messrs. Van Hulle, Garratt and Nikrant’s opportunities continued to be 100%. Mr. Newlin was not eligible for a 2016 long-term incentive award per the 2012 Long-Term Incentive Plan individual incentive opportunities, if applicable.terms of his Letter Agreement.
Named Executive Officer | 2012 Long-Term Incentive Opportunity | 2013 Long-Term Incentive Opportunity | % Change | |||||||||||
S.D. Newlin | 350% | 350% | 0% | |||||||||||
R.M. Patterson(1) | 140% | 150% | 7% | |||||||||||
B.C. Richardson (2) | N/A | N/A | N/A | |||||||||||
R.J. Diemer, Jr. | 100% | 100% | 0% | |||||||||||
T.J. Kedrowski | 100% | 100% | 0% | |||||||||||
K.M. Smith | 100% | 100% | 0% |
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COMPENSATION
Based on 2013 competitive market data provided by the Consultant, we determined that the individual Long-Term Incentive Plan opportunities granted to the Named Executive Officers in 2013 ranged from 5% above to 29% below the 2013 market median for comparable positions. Individual opportunities varied based on time with PolyOne, individual performance and leadership efforts.
Awards Granted in 2013
On February 15, 2013, we granted awards under the Amended 2010 Plan as part of our annual Long-Term Incentive Plan award. For purposes of these grants, and after2016. After a thorough evaluation of other possible vehicles, the Compensation Committee elected to retain the same three compensation vehicles and weightings that we used in 2015 for the 2012 annual Long-Term Incentive Plan,2016 long-term incentive awards, which are listed below. We maintained this planprogram design to continue to provide a balance between the relative values of the three compensation vehicles while efficiently using the shares available under the Amended 2010Long-Term Incentive Plan. Of these three vehicles, the cash-settled performance units and the stock-settled stock appreciation rights (“SARs”) were established withhave performance conditions, as described in detail below. Both the cash-settled performance units and the SARs are additionally subject to time-based vesting as described in detail below. The restricted stock units (“RSUs”) are time-based awards that generally vest in their entirety on the third anniversary of the grant date.
2016 Long-Term Incentive Plan
Vehicles and Weightings
The Compensation Committee also
On February 10, 2016, we granted special one-time equity awards in 2013 under the Amended 2010Long-Term Incentive Plan to reward specific accomplishments of variousall our Named Executive Officers. These one-time grants are listed in the 2013 Grants of Plan-Based Awards table of this proxy statement andOfficers, except Mr. Newlin. Details regarding these awards are described below.
Cash-Settled Performance Units
.Cash-settled performance units provide an opportunity for employees to receive a cash bonus if specified performance measures are met for apre-defined performance period. On February 15, 2013, we granted cash-settled performance units under the Amended 2010 Plan to all Named Executive Officers serving at that time as part of our annual Long-Term Incentive Plan award. The cash-settled performance units will be earned based on achieving adjusted earnings per share performance goals during the three-year period of January 1, 2013 through December 31, 2015. The Compensation Committee maintained adjusted earnings per share as the 20132016 performance measure in order to drive improvements in shareholder value. In 2013, we utilizedWe will use the following four performance periods and relative weightings listed below to drive annual performance as well as cumulative performance. Requiring annual, as well as cumulative, performance goals ensureshelps ensure that adjusted earnings per share growth is a constant and visible incentive goal for our Named Executive Officers to achieve each year.
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COMPENSATION DISCUSSION AND ANALYSIS
Performance Period | Weighting | |
January 1, | 25% | |
January 1, | 25% | |
January 1, | 25% | |
January 1, | 25% |
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The attainment level for the cash-settled performance units will be determinedcertified at the end of each applicablethe three-year performance period. We established threshold, target and maximum adjusted earnings per share goals for each of the above listed performance periods. Participants will earn, for the applicable performance period: (1) 100% of the target award of cash-settled performance units upon attainment of the target performance level; (2) 50% of the target award upon attainment of the threshold performance level or (3) 200% of the target award upon attainment of the maximum (or greater) performance level. If final performance falls between the threshold and target or between target and maximum, earned award amounts will be interpolated. If threshold performance is not achieved for a particular performance period, then no award will be paid to the participants for the applicablesuch performance period. The cash-settled performance units generally do not vest and pay out until the payment date in order to serve as a retention vehicle.vehicle and participants must generally be employed on the payment date to receive payment. The payment date will be a date in 20162019 determined by the Board,Compensation Committee (or its authorized delegate), which shall occur no later than March 15, 2016.2019.
We do not disclose the specific, forward-looking adjusted earnings per share goals that we established for the cash-settled performance units granted in 20132016 in this proxy statement because (1) these goals relate to executive compensation to be earned and/or paid in future years and do not effectaffect a fair understanding of the Named Executive Officers’ compensation for 20132016 and (2) we believe that disclosure of such goals while the applicable performance period is ongoing would cause us competitive harm. However, we disclose such goals in future proxy statements once the applicable performance periods have ended as part of our discussion and analysis about the amounts earned by the Named Executive Officers under these awards. In setting the applicable target levels, the Compensation Committee considered how achievement of the performance goals could be impacted by events expected to occur in the coming years. When establishing the specific goals for the Adjusted Earnings Per Shareadjusted earnings per share performance metric,measure, we specifically considered how likely it will be for us to achieve the goals. We believe that the threshold goals have been established at levels that should be appropriately difficult to attain, and that the target goals will require considerable and increasing collective effort on the part of our employees, including our Named Executive Officers, to achieve. Achievement of the maximum goal is considered to be a stretch goal given current market conditions. The performance unit grants made in 20132016 for the Named Executive Officers are set forth in the 20132016 Grants of Plan-Based Awards table of this proxy statement.
Stock-Settled Stock Appreciation Rights
On February 15, 2013, we granted performance-based stock-settled SARs under the Amended 2010 Plan to all Named Executive Officers serving at that time as part of our annual Long-Term Incentive Plan award. Rights.The SARs, when exercised by the holder,Named Executive Officers, are settled in our common shares and have an exercise price equal to the closing market price of our common shares on the grant date. However, the SARs are subject to an appreciation cap of 200% of the initial grant date closing stock price. To continually reinforce our ongoing commitment to enhancing shareholder value, the 20132016 awards initially vestone-third upon the later of: (1) achieving each of the following stock price hurdles and maintaining them for thirty consecutive trading days: 10%, 15% and 20% increase, respectively, over the initial grant date closing stock price of $23.08. These hurdles were achieved in 2013. The SARs also are subject to additional$24.98; and (2) time-based vesting requirements that lapseone-third on each of the first three anniversaries of the grant date, generally subject to the Named Executive Officer’s continued employment. TheyAll performance hurdles were met in 2016. The SARs have an exercise term of ten years. The SARs granted in 20132016 to the Named Executive Officers are set forth in the 20132016 Grants of Plan-Based Awards table of this proxy statement.
Restricted Stock Units
To.RSUs are designed to promote share ownership and enhancepromote the retention of our executives, we also granted time-basedexecutives. The RSUs on February 15, 2013 under the Amended 2010 Plan to all Named Executive Officers serving at that time as part of our annual Long-Term Incentive Plan award. The RSUsgenerally vest on the third anniversary of the grant date and are set forth in the 20132016 Grants of Plan-Based Awards table of this proxy statement.
One-Time Awards of Restricted Stock Units
The Compensation Committee granted special one-time awards of RSUs to executives, including Named Executive Officers, in 2013 to reward specific achievements. These grants are described below.
On March 8, 2013, we granted a one-time award of 100,000 RSUs to Mr. Newlin. The award was intended to recognize Mr. Newlin’s significant contributions over the past seven years in transforming PolyOne into a specialty chemical company. Specifically, the award was intended to recognize Mr. Newlin’s success in implementing PolyOne’s four pillar strategy; driving growth in our specialty platform to the point that it now represents more than 50% of our operating profits (at the
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time of Mr. Newlin’s grant); significantly upgrading PolyOne’s portfolio by acquiring specialty companies such as GLS Corporation in 2008, ColorMatrix in 2011, and Spartech in 2013; by divesting of PolyOne’s interest in its non-core equity investments, such as Oxy Vinyls and SunBelt as well as our non-core resin business, which was sold in May 2013; creating an effective management team and a robust succession plan; and instituting talent upgrades and discipline throughout the organization.
Because of these significant achievements and his demonstrated ability to deliver results that increase shareholder value, our Compensation Committee believed that the award of 100,000 RSUs was appropriate and consistent with its goal of rewarding executives for stellar performance. The vesting and other conditions of this grant are similar to the RSU grants madeActions Taken on February 15, 2013, with the exception of the vesting provisions relating to Mr. Newlin’s retirement, and will pay out in all cases at the same time as the other grants made on February 15, 2013. This award is set forth in the 2013 Grants of Plan-Based Awards table of this proxy statement.
To recognize their significant contributions with regard to PolyOne’s acquisition of Spartech and its continued successful integration with PolyOne, on March 13, 2013, Messrs. Patterson and Kedrowski were each granted a one-time award of 25,000 RSUs, Mr. Smith was granted a one-time award of 15,000 RSUs and Mr. Diemer was granted a one-time award of 2,500 RSUs (which was later modified and a portion forfeited), as set forth in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement. The vesting and other conditions of these grants are substantially similar to the RSU grants made on February 15, 2013. These awards are also set forth in the 2013 Grants of Plan-Based Awards table of this proxy statement.
Performance Shares
To recognize their significant contributions regarding PolyOne’s acquisition of Spartech and its continued successful integration with PolyOne, on March 13, 2013, Messrs. Patterson and Kedrowski were each granted a one-time award of 25,000 performance shares under the Amended 2010 Plan. The performance shares will be earned contingent upon achieving $65 million in synergies resulting from PolyOne’s acquisition of Spartech (“Synergy Goal”). If the Synergy Goal is achieved, then the performance shares shall become non-forfeitable and fully vested on March 31, 2016. The performance-shares granted to Messrs. Patterson and Kedrowski are set forth in the 2013 Grants of Plan-Based Awards table of this proxy statement.
Awards Granted in Prior Years
Years.In February 2014,2017, the Compensation Committee reviewed, certified and approved the attainment level of cash-settled performance units granted at the start of 20112014 for the three yearthree-year performance period of January 1, 20112014 through December 31, 2013. These2016. The four, equally weighted performance periods listed below were used in order to drive annual as well as cumulative performance. The cash-settled performance units were earned by achieving performance goals related to our cumulative adjusted earnings per share
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COMPENSATION DISCUSSION AND ANALYSIS
over the three-yeareach performance period. For retention purposes, the performance units generally could not be paid until the end of the vesting period, which began on January 1, 2011 and ended on the payment date February 28, 2014.approximately three years following the date of grant as approved by Compensation Committee (or its authorized delegate). The Named Executive Officers received a cash payout based on achieving 200%149% of the target level performance for this goal, reflected below.
On March 31, 2016, Mr. Patterson forfeited the performance shares granted to him on March 13, 2013. The vesting of the performance shares was subject to specific profitability improvements resulting from PolyOne’s acquisition of Spartech. The profitability improvements were not achieved and as reflected below:such the performance shares and related dividend equivalents were forfeited.
Performance Measure | 2011 – 2013 Goals* | % Payout | ||||||||
Threshold (50%) | Target (100%) | Maximum (200%) | Actual Result | |||||||
2011-2013 Cumulative Adjusted Earnings per Share | $2.55 | $2.79 | $3.19 | $3.65 | 200% |
2014 – 2016 Cash-Settled Performance Units Performance Measure: Adjusted Earnings Per Share* | ||||||||||||
Performance Periods | Weighting | Threshold | Target | Maximum | Result | Payout % | ||||||
January 1, 2014 – December 31, 2014 | 25% | $1.38 | $1.51 | $1.70 | $1.80 | 200% | ||||||
January 1, 2015 – December 31, 2015 | 25% | $1.45 | $1.74 | $2.22 | $1.96 | 146% | ||||||
January 1, 2016 – December 31, 2016 | 25% | $1.56 | $2.03 | $2.92 | $2.13 | 111% | ||||||
January 1, 2014 – December 31, 2016 | 25% | $4.39 | $5.28 | $6.84 | $5.89 | 139% | ||||||
Total Attainment | 149% |
* All financial measures (performance measures and results) reported in the table above table were calculated with adjustments for acquisitions, divestitures and special items (as noted on Appendix A) pursuant to the terms of the plans and as approved by the Board of Directors.Compensation Committee.
Actual payouts of the cash-settled performance units granted in 20112014 to the Named Executive Officers under theLong-Term Incentive Plan are set forth in the “Non-Equity“Non-Equity Incentive Plan Compensation” column of the 20132016 Summary Compensation Table of this proxy statement.
All equity awards outstanding as of December 31, 20132016 are set forth in the Outstanding Equity Awards at 20132016 FiscalYear-End table of this proxy statement.
Other Aspects of Our Compensation Programs
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The Compensation Committee, with support from management, also considers, adopts, reviews and revises executive officer benefit programs, promotions, and any individual agreements impacting the compensation and benefits of our Named Executive Officers. In addition, the Compensation Committee also oversees the governance of our compensation practices. The following section describes significant activities relating to the above that occurred in 2016.
Retirement Benefits
. We offer the following retirement benefits to eligible employees and eligible Named Executive Officers as specified below. Additional details about these plans, as they apply to the Named Executive Officers, are included in the narrative to the 2013“2016 Pension BenefitsBenefits” and 2013“2016 Nonqualified Deferred CompensationCompensation” sections of this proxy statement.
· | A defined contribution retirement benefit available to eligible United States employees (as defined in the plan document) through an Internal Revenue Codetax-qualified profit sharing/401(k) plan (referred to as the “Qualified Savings Plan”); |
· | An unfunded, nonqualified plan that provides benefits similar to the Qualified Savings Plan (referred to as the “PolyOne Supplemental Retirement Benefit Plan”), but without the Internal Revenue Code contribution and earnings limitations; and |
· | A supplemental retirement benefit for Mr. Newlin that provides annual supplemental retirement payments, payable in the form of a15-year certain and continuous life annuity commencing on December 1, 2016. |
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COMPENSATION DISCUSSION AND ANALYSIS
Other BenefitsBenefits.
We provide other benefits to the Named Executive Officers whichthat we believe are necessary to compete for executive talent. The additional benefits for the Named Executive Officers generally consist of a benefit allowance (which has been phased out for newly hired executive officers, including Messrs. Richardson and Garratt), limited reimbursement of expenses for financial planning and tax preparation, a moving allowance (where applicable), global travel health benefits, and an annual physical examination.examination and for Mr. Newlin only, use of office space and administrative assistance after his retirement (including a related taxgross-up). The specific amounts attributable to the 20132016 other benefits provided to the Named Executive Officers are set forth in the “All Other Compensation” column of the 20132016 Summary Compensation Table of this proxy statement.
The benefit allowance and reimbursement of expenses for financial planning and planning/tax preparation are treated as taxable income to the Named Executive Officers and are not grossed up by PolyOne. Taxgross-ups are provided for imputed income for spouse/guest travel.
We also provide other benefits such as medical, dental, life insurance and disability coverage to each United States basedStates-based Named Executive Officer, which are identical to the benefits provided to all other eligible United States-based employees.employees (as defined in the plan document). We provide vacation and paid holidays to all employees, including the Named Executive Officers. The Named Executive Officers were eligible for the following vacation periods in 2013: Mr. Newlin — five weeks;2016: Mr. Patterson — four weeks; Mr. Richardson — four weeks; Mr. Van Hulle — four weeks; Mr. Garratt – four weeks; Mr. Diemer –fourNikrant— four weeks; Mr. Kedrowski — four weeks and Mr. SmithNewlin — five weeks.
Employment AgreementsAgreement with Named Executive OfficersOfficer.
Mr. Newlin is a party toOn February 6, 2006, we entered into an employment agreement with us,Mr. Newlin, pursuant to which he served as our Chairman, President and Chief Executive Officer. The agreement set an initial base salary and provided for his participation in our various long-term incentive and benefit plans in effect during the term of his employment. Mr. Newlin’s employment agreement was amended and restated as of July 16, 2008, to provide for a supplemental retirement benefit, as described below. Mr. Newlin’s employment agreement was further amended and restated by letter agreement (the “Letter Agreement”), on March 6, 2014, in connection with his retirement as CEO and transition to Executive Chairman (effective May 15, 2014) and further amended on February 10, 2016 to extend his employment to July 1, 2016. Under the Letter Agreement, Mr. Newlin was entitled to receive an annual salary of $655,850, which was reduced from his previous salary of $1,050,000 effective May 15, 2015.
Mr. Newlin retired from the Company on July 1, 2016. The Letter Agreement provides that Mr. Newlin is entitled to annual supplemental retirement payments upon his retirement in the form of a15-year certain and continuous life annuity, conditioned upon Mr. Newlin’s execution of a release and waiver. In addition, he and his eligible dependents will have access to the same retiree medical benefits made available to all retirement eligible employees under our standard retiree medical benefit program, to the extent we continue to maintain such programs for the benefit of our retirees and their eligible dependents. The Letter Agreement also provides Mr. Newlin with access to PolyOne office space and administrative assistance for five years following his retirement.
We do not maintain employment agreements with any of the other Named Executive Officers, although each of our Named Executive Officers is a party to a management continuity agreement, theagreement. The details of whichthe management continuity agreements of the other Named Executive Officers are described below and are set forth in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.
On February 6, 2006, we entered into an agreement with Mr. Newlin, under which he served as our Chairman, President and Chief Executive Officer. We entered into this agreement in order to attract Mr. Newlin to PolyOne and set the terms of his employment. The agreement provided for specified equity awards that were intended to serve as an inducement to join PolyOne, set an initial base salary and provided for his participation in our various long-term incentive and benefit plans in effect during the term of his employment. In addition, the agreement provided for certain payments upon termination of employment, as described more fully in “Potential Payments Upon Termination or Change of Control” section of this proxy statement. Mr. Newlin’s employment agreement was amended and restated as of July 16, 2008, to provide for a supplemental
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retirement benefit, as described in the “2013 Pension Benefits” section of this proxy statement. Mr. Newlin’s employment agreement was further amended and restated, effective May 15, 2014, in connection with his retirement as CEO.
New Named Executive Officer Compensation and Benefits
Mr. Richardson joined PolyOne as Executive Vice President and Chief Financial Officer with more than 30 years of experience in financial and operational management, including more than 10 years of experience as a chief financial officer. The compensation components of Mr. Richardson’s offer letter include:
Mr. Richardson was also granted a one-time award of 20,000 stock-settled RSUs to offset compensation from his previous employer that he forfeited by accepting employment with PolyOne. The RSUs vest on the third anniversary of the grant date and are in all respects in accordance with the Amended 2010 Plan, as well as the specific terms and conditions approved by the Compensation Committee for the annual grants of RSUs made on February 15, 2013. Commencing in 2014, Mr. Richardson was eligible to participate in the Long-Term Incentive Plan, and was awarded a grant along with other participants in the Compensation Committee’s discretion.
With this compensation and benefits package, the Compensation Committee intended to provide Mr. Richardson with competitive compensation that emphasized equity and performance-based compensation elements to align his pay with shareholder interests. In reaching the terms of the offer letter for Mr. Richardson, the Compensation Committee considered market data, as well Mr. Richardson’s experience and the compensation arrangement that he would have to give up at his employer in accepting a position with PolyOne. This information was used to inform, not dictate, the Compensation Committee’s decision regarding pay. Ultimately, the pay levels and equity award reflected in his offer letter were, in the Compensation Committee’s judgment and based upon available information, a competitive pay package for Mr. Richardson’s position and experience and were not targeted or benchmarked at any particular level.
The Board believes that hiring Mr. Richardson was in the best interests of PolyOne and our shareholders, as he brings the experience and expertise that the Board considers essential to continuing PolyOne on a path towards growth and innovation. The Board determined, in its judgment, that the compensation levels, equity award and other terms of his offer were appropriate and necessary to attract and retain Mr. Richardson.
Executive Severance and Release Agreement with Former Executive
PolyOne and Mr. Diemer agreed that Mr. Diemer would step down from his position as Senior Vice President and Chief Financial Officer effective November 8, 2013. In conjunction with his departure, Mr. Diemer received the benefits that he was entitled to under the Executive Severance Plan and PolyOne and Mr. Diemer executed an executive severance agreement and release (the “Severance Agreement”). The compensation and benefits that Mr. Diemer received and the terms of the Severance Agreement are set forth in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement.
Consulting Agreement with Former Executive
On November 5, 2013, PolyOne and Mr. Diemer executed a consulting agreement under which Mr. Diemer agreed to provide consulting services to PolyOne (the “Consulting Agreement”). In consideration for these consulting services, PolyOne modified specific RSUs granted to Mr. Diemer in 2012 and 2013, which would have otherwise been forfeited under the terms of the applicable grant agreements upon his separation from service. The terms of the Consulting Agreement are set
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forth in the “Potential Payments Upon Termination or Change of Control” section of this proxy statement. The Compensation Committee believes, in its business judgment, that executing the Consulting Agreement is in the best interest of PolyOne to ensure a smooth transition of our finance and investor relations departments and maintain PolyOne’s focus on its operations.
Tax ConsiderationsConsiderations.
Cash compensation, such as base salary and annual incentive compensation, is taxable to the recipient as ordinary income when earned, unless deferred under a company-sponsored deferral plan. Deferrals under Internal Revenue Codetax-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, RSUs are generally taxable as ordinary income when they vest, and cash-settled performance units are generally taxable when paid. We realize a tax deduction at those specified times. The Compensation Committee reviews potential tax implications before making decisions regarding compensation.
Management and the Compensation Committee are aware of Code Section 162(m), which generally limits the deductibility of executive paydisallows a federal income tax deduction to publicly traded companies like PolyOne for compensation in excess of one$1 million dollars for certain Namedper year paid to a company’s Chief Executive Officers,Officer and which specifies the company’s three other most highly compensated executive
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COMPENSATION DISCUSSION AND ANALYSIS
officers, other than the company’s Chief Financial Officer, who are employed as of the end of the year. The $1 million deduction limit generally does not apply to compensation that satisfies Section 162(m)’s requirements for the “performance-based” pay exemption from this limit.qualified performance-based compensation. The Compensation Committee generally intends for our incentive programs to qualify for the performance-based pay exemption. It also reserves the right tomay provide compensation that does not meet the exemption criteria including if, in its sole discretion, it determines that doing so advances our business objectives.
The Compensation Committee believes that Section 162(m) is only one of several relevant considerations in setting compensation. The Compensation Committee also believes that Section 162(m) should not be permitted to compromise its ability to design and maintain executive compensation arrangements that, among other things, are intended to attract, motivate and help retain a highly qualified and successful management team to lead PolyOne. As a result, the Compensation Committee retains the flexibility to provide compensation it determines to be in the best interests of PolyOne and its shareholders even if that compensation ultimately is not deductible for tax purposes. Moreover, even if we intend to grant compensation that qualifies as performance-based compensation for purposes of Section 162(m), we cannot guarantee that such compensation will so qualify or ultimately will be deductible by us.
Accounting Considerations
. When reviewing preliminary recommendations and in connection with approving the terms of a given incentive plan period, senior management and the Compensation Committee review and consider the accounting implications of a given award, including the estimated expense and dilutive considerations. With consideration of the accounting treatment associated with an incentive plan design, senior management and the Compensation Committee may alter or modify the incentive award if the award (and the related accounting consequences) were to adversely affect our financial performance.
Executive Compensation Governance
Stock Ownership and Retention Guidelines. In order to better align the financial interests of our executives with those of our shareholders, we believe our executives should own a meaningful number of shares of PolyOne stock. We have adopted Guidelines specifying a minimum level of stock ownership for all executives, including all Named Executive Officers. In March 2014, we amended our Guidelines (which had previously been amended in December 2012) to more accurately reflect the market median multiple of salary for all of our executive officers, including our Named Executive Officers. This change was necessary due to significant stock price appreciation that had occurred since the prior amendment of the Guidelines.
The current Guidelines require all executives, including the Named Executive Officers, to retain 100% of all net shares obtained through PolyOne as compensation for services provided. This requirement will cease when the Guidelines have been met, provided that an officer can only divest of a number of shares such that the Guidelines continue to be met. In general, shares counted toward required ownership include shares directly and indirectly held, shares and phantom shares held in our retirement or deferral plans, and RSUs and performance shares (if the applicable performance criteriameasures are met). The specific levels of stock ownership for the continuing 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 Guidelines. These policies, as they relate to our Directors, are discussed in the “Stock Ownership Guidelines for Directors” section inof this proxy statement.
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Stock Ownership Guidelines
Newlin(1) | Patterson(1) | Richardson(2) | Kedrowski | Smith | ||||||
Stock Ownership Target (in shares) | 125,000 | 65,000 | 45,000 | 30,000 | 20,000 | |||||
Prorated Stock Ownership Target (in shares) | N/A | N/A | 9,000 | N/A | N/A | |||||
Multiple of Salary(3) | 4.4 | 4.1 | 0.6 | 2.8 | 2.0 | |||||
Total Share Ownership as of 3/1/14 | 504,591 | 242,756 | 34,046 | 261,679 | 137,827 | |||||
Value of Total Share Ownership 3/1/14(3) | $18,705,188 | $8,998,965 | $1,262,085 | $9,700,441 | $5,109,247 | |||||
Value of Share Ownership as a Multiple of Base Salary | 17.8 | 15.4 | 2.4 | 24.3 | 13.4 |
Stock (in shares) | Prorated Stock (in shares) | Total Share Ownership as of 2/28/17 | ||||||||||
R.M. Patterson | 125,000 | N/A | 335,667 | |||||||||
B.C. Richardson(1) | 45,000 | 29,712 | 51,812 | |||||||||
J.V. Van Hulle | 20,000 | N/A | 42,970 | |||||||||
M.A. Garratt(1) | 20,000 | 14,126 | 20,267 | |||||||||
C.M. Nikrant | 20,000 | N/A | 68,761 |
(1) | Mr. |
Timing with Respect to Equity Award Grants. We have adopted a policy with respect to the timing of the grant of equity awards, which provides that equity awards are granted pursuant to approval by the Board or the Compensation Committee or, pursuant to authority delegated by the Board or the Compensation Committee to the Chief Executive Officer. Such grants generally should be made at times when PolyOne is not in possession of materialnon-public information; and not made during a “blackout period,” which is the period of time that is in close proximity to the release of financial or materialnon-public information. The policy further provides that, to the extent practicable, annual grants to existing employees should be approved at regularly scheduled meetings and that the grant price for any stock option or SAR shall not be less than the fair market value of PolyOne’s common shares on the grant date (which is defined as the closing price of our common shares on the grant date).
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COMPENSATION DISCUSSION AND ANALYSIS
Clawback Policy.We haveIn March 2015, our Board adopted a clawback policy that, is consistent withupon any act of fraud, dishonesty or recklessness in the requirementsperformance of an executive officer’s duties that contributed to 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 toCompany’s material noncompliance with any financial reporting requirementrequirements resulting in a material accounting restatement, would generally require such executive officer to repay all incentive-based compensation that he or she received in excess of what would have been paid if they are subjectthe restated financial statements had originally been prepared without such material accounting restatement. The Board expects to automatic forfeiture under Section 304 ofamend the Sarbanes-Oxley Act. If necessary, we plan to modify ourclawback policy to comply with the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),again when the SEC or NYSE implements rules and regulations.final clawback regulations become available.
Prohibition on Hedging or Pledging Our SecuritiesSecurities.
PolyOne’s trading policy currently provides that, consistent with our philosophy to encourage long-term investments, Directors, officers and certain other employees of PolyOne are prohibited from hedging or pledging our securities.
Executive Compensation
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EXECUTIVE COMPENSATION
The following tables, narrative and footnotes discuss in more detail the compensation of our Named Executive Officers.
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20132016 Summary Compensation Table
The following table sets forth the compensation earned by,for the fiscal years ended December 31, 2016, December 31, 2015 and the compensation opportunity granted to,December 31, 2014, as applicable, for our principal executive officer,Chief Executive Officer and our principal financial officers that served in such capacity in 2013, andChief Financial Officer, our three other most highly compensated executive officers for 2013, during the fiscal years endedserving as of December 31, 2013, December 31, 20122016, and December 31, 2011,one of our former executive officers (collectively referred to as applicable.our Named Executive Officers).
Name and Principal Position (a) | Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards ($) (e) | Option Awards ($) (f) | Non-Equity Incentive Plan Compensation ($) (g) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (h) | All Other Compensation (5) ($) (i) | Total ($) (j) | |||||||||
Stephen D. Newlin, Chairman, President and Chief Executive Officer | 2013 | 1,040,846 | - | 3,812,040 | 1,483,710 | 4,649,890 | 161,443 | 285,550 | 11,433,479 | |||||||||
2012 | 978,846 | - | 1,519,440 | 1,611,627 | 4,081,699 | 1,273,625 | 274,428 | 9,739,665 | ||||||||||
2011 | 946,538 | - | 1,285,508 | 1,282,148 | 4,088,859 | 520,514 | 237,119 | 8,360,686 | ||||||||||
Robert M. Patterson, Executive Vice President and Chief Operating Officer | 2013 | 546,292 | - | 1,580,236 | 332,481 | 1,177,619 | - | 109,279 | 3,745,907 | |||||||||
2012 | 513,461 | - | 318,498 | 338,997 | 1,071,941 | - | 94,919 | 2,337,817 | ||||||||||
2011 | 473,269 | - | 247,327 | 247,660 | 996,654 | - | 83,040 | 2,047,950 | ||||||||||
Bradley C. Richardson, Executive Vice President and Chief Financial Officer(1) | 2013 | 50,000 | - | 606,400 | - | 56,485 | - | 3,250 | 716,135 | |||||||||
Richard J. Diemer, Jr., Senior Vice President and Chief Financial Officer(2) | 2013 | 403,788 | - | 988,995 (2) | 175,446 (2) | - | - | 1,466,840 (3) | 3,035,069 | |||||||||
2012 | 339,635 | - | 537,100 (2) | 185,500 (2) | 381,885 | - | 102,706 | 1,546,826 | ||||||||||
Thomas J. Kedrowski, Executive Vice President, Global Operations and Process Improvement | 2013 | 398,139 | - | 1,411,752 | 161,367 | 646,981 | - | 67,533 | 2,685,772 | |||||||||
2012 | 350,615 | - | 151,944 | 161,857 | 593,368 | - | 57,769 | 1,315,554 | ||||||||||
2011 | 341,000 | - | 131,809 | 130,732 | 596,738 | - | 67,058 | 1,267,337 | ||||||||||
Kenneth M. Smith, Senior Vice President, Chief Information and Human Resources Officer | 2013 | 370,769 | - | 521,154 | 148,371 | 629,618 | 0 (4) | 79,723 | 1,749,635 | |||||||||
2012 | 359,615 | - | 151,944 | 161,857 | 612,645 | 249,773 | 77,626 | 1,613,461 | ||||||||||
2011 | 350,769 | - | 131,809 | 130,732 | 617,187 | 158,619 | 75,030 | 1,464,146 |
Name and Principal Position (a) | Year (b) | Salary ($) (c) | Stock Awards ($) (d) | Option Awards ($) (e) | Non-Equity Plan ($) (f) | Change in Pension ($) (g) | All Other ($) (h) | Total ($) (i) | ||||||||
Robert M. Patterson, Chairman, President and Chief Executive Officer | 2016 | 911,538 | 868,055 | 871,757 | 1,033,315 | - | 120,506 | 3,805,171 | ||||||||
2015 | 854,615 | 918,480 | 930,020 | 879,622 | - | 142,839 | 3,725,576 | |||||||||
2014 | 702,846 | 4,041,574 | 288,093 | 1,334,946 | - | 108,667 | 6,476,126 | |||||||||
Bradley C. Richardson, Executive Vice President, Chief Financial Officer | 2016 | 558,846 (3) | 207,334 | 208,410 | 543,840 | - | 58,902 | 1,577,332 | ||||||||
2015 | 564,823 | 256,409 | 260,740 | 164,844 | - | 79,905 | 1,326,721 | |||||||||
2014 | 521,538 | 245,490 | 244,528 | 479,685 | - | 49,947 | 1,541,188 | |||||||||
John V. Van Hulle, Senior Vice President, President of Global Color, Additives and Inks | 2016 | 450,385 (3) | 123,651 | 124,300 | 281,449 | - | 69,974 | 1,049,759 | ||||||||
2015 | 455,069 | 153,080 | 156,165 | 440,230 | - | 67,420 | 1,271,964 | |||||||||
2014 | 421,154 | 1,984,794 | 146,155 | 485,657 | - | 72,651 | 3,110,411 | |||||||||
Michael A. Garratt, Senior Vice President, Chief Commercial Officer(1) | 2016 | 396,539 | 106,165 | 106,898 | 316,571 | - | 49,552 | 975,725 | ||||||||
Craig M. Nikrant, Senior Vice President, President of Global Specialty Engineered Materials(1) | 2016 | 408,461 (3) | 112,410 | 112,284 | 248,805 | - | 54,740 | 936,700 | ||||||||
2015 | 411,115 | 130,118 | 129,673 | 368,506 | - | 45,241 | 1,084,653 | |||||||||
Stephen D. Newlin, Former Executive Chairman(2) | 2016 | 340,538 | - | - | 1,642,725 | 0 (4) | 162,612 | 2,145,875 | ||||||||
2015 | 846,315 | - | - | 2,205,000 | 1,928,984 | 223,430 | 5,203,729 | |||||||||
2014 | 1,050,000 | 1,276,548 | 1,278,853 | 3,692,325 | 2,028,725 | 292,176 | 9,618,627 |
(1) | Compensation for Mr. |
(2) | Mr. |
In connection with the Consulting Agreement, PolyOne modified certain RSUs previously granted to Mr. Diemer in 2012 and 2013, which would have otherwise been forfeited under the terms of the applicable grant agreements. The incremental value of the modified RSUs as reported in Mr. Diemer’s 2013 Stock Awards is $753,270. The modified awards and details regarding their value are set forth in the 2013 Grants of Plan-Based Awards table of this proxy statement and in its accompanying footnotes. In addition, pursuant to FASB ASC Topic 718, Mr. Diemer forfeited $537,100 in reported value of his 2012 and $235,725 in reported value of his 2013 RSUs upon his separation from service pursuant to the terms of his applicable grant agreements, which amounts have not been deducted from the amounts appearing in column (e) above.
In addition, Mr. Diemer forfeited all unvested SARs and cash-settled performance units pursuant to the terms of his applicable grant agreements. Thus, the amounts reported in column (f) of the Summary Compensation Table do not reflect the amounts Mr. Diemer actually received as he forfeited $175,446 (2013) and $124,900 (2012) of his SARs awards.
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(3) |
(4) | The aggregate change in the actuarial present value of Mr. |
Bonus (column (d))
No amounts are reported in this column because PolyOne paid annual incentives to the Named Executive Officers based upon pre-determined performance metrics. These payments, which were made under the PolyOne’s Annual Plan, are reported in the “Non-Equity Incentive Plan Compensation” column (column (g)).
Stock Awards (column (e)(d))
The amounts reported in the “Stock Awards” column include,relate to, for 2013,2016, time-vested stock-settled RSUs and performance shares that were granted to the Named Executive Officers, including special one-time RSU and performance shareOfficers. These awards granted to specific Named Executive Officers asare described more fully in the “Analysis“What We Pay and Why: Elements of 2013 Compensation Decisions and Actions”Compensation” section of the CD&A.this proxy statement.
The amounts reported for 2016 represent the aggregate grant date fair value of those stock awards determined pursuant to FASB ASC Topic 718. Accordingly, this column includes amounts for awards that have not yet vested, as well as for awards that were later cancelled (such as upon an executive’s separation from service).vested. For information regarding the assumptions used in determining the fair value of these awards, please refer to Note 15,14, Share-Based Compensation, in our Annual Report on Form10-K for the fiscal year ended December 31, 2013. These grants are described more fully in the “Compensation Discussion and Analysis — Analysis of 2013 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2013 — ‘Restricted Stock Units,’ ‘One-Time Awards of Restricted Stock Units’ and ‘Performance Shares’” sections of this proxy statement.2016.
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EXECUTIVE COMPENSATION
PolyOne cautions that the amounts reported for these awards may not represent the amounts that the Named Executive Officers will actually realize from these awards. To what extent a Named Executive Officer realizes value will depend on our stock price and continued employment. The value actually received upon a releasesettlement of RSUs tofor the Named Executive Officers in 20132016 is reflected in the 20132016 Option Exercises and Stock Vested table of this proxy statement.
Option Awards (column (f)(e))
The amounts reported in the “Option Awards” column include,consist of, for 2013,2016, stock-settled SARs with(with time and performance based vesting requirements as well as a SAR appreciation cap) that were granted in 2013 to the Named Executive Officers under our Amended 2010 Plan.Officers. The amounts reported for 20132016 represent the grant date fair value of the SARs granted to each of the Named Executive Officers, calculated in accordance with FASB ASC Topic 718. Accordingly, this column includes amounts for awards that have not yet vested, as well as for awards that were later cancelled (such as upon an executive’s separation from service).vested. For information regarding the assumptions used in determining the fair value of these awards, please refer to Note 15,14, Share-Based Compensation, in our Annual Report on Form10-K for the fiscal year ended December 31, 2013.2016. These grantsawards are described more fully in the narrative following the 2013 Grants“What We Pay and Why: Elements of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2013 Compensation Decisions and Actions — Long-Term Incentive — Awards Granted in 2013 — Stock-Settled Stock Appreciation Rights”Compensation” section of this proxy statement.
PolyOne again cautions that the amounts reported for these awards may not represent the amounts that the Named Executive Officers will actually realize from the awards. To what extent a Named Executive Officer realizes value will depend on our stock price and continued employment. The value actually received upon exercise of SARs by theNo Named Executive Officers in 2013 is reflected in the 2013 Option Exercises and Stock Vested table of this proxy statement.Officer exercised SARs during 2016.
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COMPENSATION
Non-Equity Incentive Plan Compensation (column (g)(f))
The amounts reported in the “Non-Equity“Non-Equity Incentive Plan Compensation” column for 20132016 include amounts earned by each Named Executive OfficerOfficers (as applicable) under the 20132016 Annual PlanIncentive Program (and paid in February 2014)2017), and cash-settled performance units granted on February 16, 201111, 2014 under the 2011 — 20132014 - 2016 Long-Term Incentive PlanProgram (and paid in February 2014)2017). The terms of the 2016 Annual Plan are described more fully inIncentive Program and the narrative following the 2013 Grants of Plan-Based Awards table and in the “Compensation Discussion and Analysis — Analysis of 2013 Compensation Decisions and Actions — Annual Incentive” section of this proxy statement. The terms of the 2011 — 20132014 – 2016 Long-Term Incentive PlanProgram cash-settled performance units are described more fully in the narrative following the “Compensation Discussion“What We Pay and Analysis — AnalysisWhy: Elements of 2013 Compensation Decisions and Actions — Awards Granted in Prior Years”Compensation” section of this proxy statement. The amountspayouts earned by the Named Executive Officers under each planboth plans (as applicable) are listed below.
Name | Annual Plan ($) | Cash-Settled Performance Units ($) | Total ($) | 2016 Annual Incentive Program | 2014 – 2016 Cash-Settled Performance Units | |||||
S.D. Newlin | 1,989,890 | 2,660,000 | 4,649,890 | |||||||
R.M. Patterson | 664,619 | 513,000 | 1,177,619 | 663,869 | 369,446 | |||||
B.C. Richardson | 56,485 | - | 56,485 | 230,046 | 313,794 | |||||
R.J. Diemer, Jr. | - | - | - | |||||||
T.J. Kedrowski | 380,581 | 266,400 | 646,981 | |||||||
K.M. Smith | 354,418 | 275,200 | 629,618 | |||||||
J.V. Van Hulle | 93,709 | 187,740 | ||||||||
M.A. Garratt | 175,766 | 140,805 | ||||||||
C.M. Nikrant | 92,355 | 156,450 | ||||||||
S.D. Newlin | - | 1,642,725 |
Change in Pension Value and Nonqualified Deferred Compensation Earnings (column (h)(g))
The amounts reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column for 20132016 are comprised entirely of changes in pension values between December 31, 20122015 and December 31, 2013.2016.
Mr. Newlin is entitled to a supplemental executive retirement benefit under his employment agreement,Letter Agreement as described more fully in the “Compensation Discussion and Analysis — Analysis of 2013 Compensation Decisions and Actions — Retirement Benefits”“Potential Payments Upon Termination or Change in Control” section of this proxy statement. The amount listeddescribed for him for 20132016 represents the aggregate change in actuarial present value (determined by subtracting the December 31, 20122015 actuarial present value from the December 31, 20132016 actuarial present value) of the annual benefit payment that will beis payable as a15-year certain and continuous life annuity beginning at age 61 and assumes that Mr. Newlin has a Qualifying Separation from Service as that term is defined herein.
Mr. Smith participates in the Qualified Pension Plan and the Benefit Restoration Plan that existed prior to PolyOne’s formation in 2000 through the consolidation of Geon and M.A. Hanna. The amount listed for him represents the aggregate change in actuarial present value (determined by subtracting thecommencing on December 31, 2012 actuarial present value from the December 31, 2013 actuarial present value) of Mr. Smith’s accumulated benefits under the Qualified Pension Plan and the Benefit Restoration Plan. For 2013, the aggregate change in the actuarial present value of Mr. Smith’s accumulated benefits under the Qualified Pension Plan and the Benefits Restoration plan decreased between December 31, 2012 and December 31, 2013 in the amount of $70,384. Therefore, the amount reported for Mr. Smith in column (h) for 2013 is reflected as zero.1, 2016.
All Other Compensation (column (i)(h))
The amounts reported in the “All Other Compensation” column for 20132016 reflect, for each Named Executive Officer, the sum of (1) the amounts contributed by PolyOne to the Qualified Savings Plan and the PolyOne Supplemental Retirement Benefit Plan, which are calculated on the same basis for all participants, including the Named Executive Officers, (2) limited taxgross-ups, (3) amounts paid or accrued relating to a Named Executive Officer’s separation from service; and (4)(3) the incremental cost to PolyOne of all other executive benefits that are required to be reported by SEC rules. The material provisions of the Qualified Savings Plan and the PolyOne Supplemental Retirement Benefit Plan are described underin the narrative following the 2013“2016 Pension Benefits tableBenefits” section of this proxy statement.
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EXECUTIVE COMPENSATION
The narrative following the table below describes these components of All Other Compensation:
Name | Company Contributions to Qualified Savings Plan ($) | Company Contributions to PolyOne Supplemental ($) | Tax Gross-ups ($) | Payments Upon Separation from Service ($) | Other Benefits ($) | Company Contributions to ($) | Company Contributions to PolyOne Supplemental ($) | Tax Gross-ups ($) | Other Benefits ($) | |||||||||
S.D. Newlin | 16,575 | 182,237 | 17,645 | - | 69,093 | |||||||||||||
R.M. Patterson | 16,575 | 62,715 | 4,686 | - | 25,303 | 17,225 | 66,967 | 7,759 | 28,555 | |||||||||
B.C. Richardson | - | 3,250 | - | - | - | 17,225 | 29,815 | - | 11,862 | |||||||||
R.J. Diemer, Jr. | 16,575 | 34,494 | - | 1,405,162 | 10,609 | |||||||||||||
T.J. Kedrowski | 16,575 | 25,198 | - | - | 25,760 | |||||||||||||
K.M. Smith | 16,575 | 31,618 | - | - | 31,530 | |||||||||||||
J.V. Van Hulle | 17,225 | 25,065 | 6,324 | 21,360 | ||||||||||||||
M.A. Garratt | 17,225 | 13,729 | 7,754 | 10,844 | ||||||||||||||
C.M. Nikrant | 17,225 | 19,628 | 7,376 | 10,511 | ||||||||||||||
S.D. Newlin | 17,225 | 3,126 | 55,115 | 87,146 |
Company Contributions to Qualified Savings Plan. PolyOne makes matching contributions on behalf of all employees,eligible participants, including the Named Executive Officers, in accordance with the Qualified Savings Plan. PolyOne also makes a retirement contribution to all eligible participants, including Named Executive Officers, in an amount equal to 2% of eligible earnings, subject to Internal Revenue Code limitations.
Company Contributions to PolyOne Supplemental Retirement Benefit Plan. PolyOne makes matching contributions on behalf of all eligible participants, including the Named Executive Officers, under the PolyOne Supplemental Retirement Benefit Plan. PolyOne also makes a retirement contribution to all eligible participants, including Named Executive Officers, in an amount equal to 2% of eligible earnings.
TaxGross-ups. PolyOne provides a reimbursement for taxes incurred when a spouse/guest travels for business purposes as it is sometimes necessary for spouses to accompany the executives to business functions. These taxes are incurred because of the Internal Revenue Service’s rules governing business travel by spouses/guests and PolyOne reimburses the associated taxes.
Payments Upon Separation from Service. The amounts PolyOne provides Mr. Newlin a reimbursement for taxes incurred on the use of office space and administrative assistance after his retirement in this column represent severance related payments that Mr. Diemer received uponrecognition of his separation from service pursuantcontributions to the Executive Severance Plan: $910,000 representing 24 months of salary continuation, a payment equal to the amount calculated under the Annual Plan as earned in 2013 of $421,071 (which was paid in 2014 at the same time as all Named Executive Officer Annual Plan payments), a payment of $17,500 for accrued but unused vacation, 24 months of accrued post-separation medical, vision and dental coverage reimbursements totaling $48,291 and accrued post-separation outplacement services totaling $8,300. The terms and conditions of Mr. Diemer’s separation from service are further described in the “Potential Payments upon Termination or Change of Control” section of this proxy statement.Company throughout his tenure.
Other Benefits. Certain additional limited benefits are made available to executives, including the Named Executive Officers. The aggregate incremental value of those benefits is included for each Named Executive Officer in the “All Other Compensation” column of the 2016 Summary Compensation Table, but, except as specifically stated below, the individual values for each item are not required to be disclosed under SEC rules because none exceeded the greater of $25,000 or 10% of the total amount of personal benefits for each Named Executive Officer. In general, these benefits include a nominal benefit allowance (provided to Messrs. Patterson, Van Hulle, Nikrant and Newlin), taxable reimbursement to the Named Executive Officers for financial planning, (used by each Named Executive Officer except Mr. Richardson) and reimbursement for the incremental value of spouse/guest travel expenses (used by Messrs. NewlinPatterson, Van Hulle, Garratt, Nikrant and Patterson)Newlin). PolyOne also makes available executive physicals to all Named Executive Officers (used by Messrs. Newlin, Patterson, Richardson, Van Hulle, and Smith)Garratt). Finally, Global CARE Insurance (Critical Care Air Rescue and Evacuation) Insurance,, which provides supplemental medical services and medical transportation related to business travel, is also provided to all Named Executive Officers. Finally, Mr. Newlin is entitled to the benefits provided in his Letter Agreement as previously described. Of the amount reported in this column for Mr. Newlin, $49,098 represents the value of these benefits in 2016. Details regarding Mr. Newlin’s retirement are further described in the “Employment Agreement with Named Executive Officer” section of this proxy statement.
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EXECUTIVE COMPENSATION
20132016 Grants of Plan-Based Awards
Name (a) | Grant Date (b-1) | Grant Approval Date (b-2) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other (#) (h) | Exercise or (i) | Grant Date Fair Value of Stock and Option/ SAR Awards ($) (j) | |||||||||||||||||||||
Threshold | Target ($) (d) | Maximum ($) (e) | Threshold (#) (f) | Target (#) (g) | ||||||||||||||||||||||||
S.D. Newlin | 572,466 | 1,144,931 | 2,289,862 | |||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 551,250 | 1,102,500 | 2,205,000 | ||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 45,667 | 137,000 | (1) | 23.08 | 1,483,710 | ||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 63,000 | (3) | 1,454,040 | ||||||||||||||||||||||||
3/8/2013 | 3/7/2013 | 100,000 | (4) | 2,358,000 | ||||||||||||||||||||||||
R.M. Patterson | 191,203 | 382,405 | 764,810 | |||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 123,975 | 247,950 | 495,900 | ||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 10,233 | 30,700 | (1) | 23.08 | 332,481 | ||||||||||||||||||||||
3/13/2013 | 12/19/2012 | 25,000 | (2) | 626,250 | ||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 14,200 | (3) | 327,736 | ||||||||||||||||||||||||
3/13/2013 | 12/19/2012 | 25,000 | (5) | 626,250 | ||||||||||||||||||||||||
B.C. Richardson | 16,250 | 32,500 | 65,000 | |||||||||||||||||||||||||
11/11/2013 | 11/1/2013 | 20,000 | (7) | 606,400 | ||||||||||||||||||||||||
R.J. Diemer, Jr. | 121,137 | 242,273 | 484,546 | |||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 65,250 | 130,500 | 261,000 | ||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 5,400 | 16,200 | (1) | 23.08 | 175,446 | ||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 7,500 | (3) | 173,100 | ||||||||||||||||||||||||
3/13/2013 | 12/19/2012 | 2,500 | (5) | 62,625 | ||||||||||||||||||||||||
11/11/2013 | 11/5/2013 | 16,986 | (6) | 515,016 | ||||||||||||||||||||||||
11/11/2013 | 11/5/2013 | 5,622 | (6) | 170,459 | ||||||||||||||||||||||||
11/11/2013 | 11/5/2013 | 1,678 | (6) | 50,877 | ||||||||||||||||||||||||
11/11/2013 | 11/5/2013 | 558 | (6) | 16,919 | ||||||||||||||||||||||||
T.J. Kedrowski | 109,488 | 218,976 | 437,952 | |||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 60,000 | 120,000 | 240,000 | ||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 4,967 | 14,900 | (1) | 23.08 | 161,367 | ||||||||||||||||||||||
3/13/2013 | 12/19/2012 | 25,000 | (2) | 626,250 | ||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 6,900 | (3) | 159,252 | ||||||||||||||||||||||||
3/13/2013 | 12/19/2012 | 25,000 | (5) | 626,250 | ||||||||||||||||||||||||
K.M. Smith | 101,962 | 203,923 | 407,846 | |||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 54,750 | 109,500 | 219,000 | ||||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 4,567 | 13,700 | (1) | 23.08 | 148,371 | ||||||||||||||||||||||
2/15/2013 | 2/15/2013 | 6,300 | (3) | 145,404 | ||||||||||||||||||||||||
3/13/2013 | 12/19/2012 | 15,000 | (5) | 375,750 |
Estimated Future Payouts Under Non- Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards |
All Other Stock (#) (h) | Exercise or (i) | Grant Date Fair Value Awards ($) (j) | ||||||||||||||
Name (a) | Grant Date (b) |
Threshold (c) | Target ($) (d) | Maximum (e) | Threshold (f) | Target (#) (g) | ||||||||||||
R.M. Patterson | 78,620 (2) | 1,048,269 (2) | 2,096,538 (2) | - | - | - | - | - | ||||||||||
118,125 (3) | 945,000 (3) | 1,890,000 (3) | - | - | - | - | - | |||||||||||
2/10/2016 | - | - | - | 35,067 | 105,200 (4) | - | 24.98 | 871,757 | ||||||||||
2/10/2016 | - | - | - | - | - | 34,750 (5) | - | 868,055 | ||||||||||
B.C. Richardson | 27,244 (2) | 363,250 (2) | 726,500 (2) | - | - | - | - | - | ||||||||||
28,250 (3) | 226,000 (3) | 452,000 (3) | - | - | - | - | - | |||||||||||
2/10/2016 | - | - | - | 8,383 | 25,150 (4) | - | 24.98 | 208,410 | ||||||||||
2/10/2016 | - | - | - | - | - | 8,300 (5) | - | 207,334 | ||||||||||
J.V. Van Hulle | 18,578 (2) | 247,712 (2) | 495,424 (2) | - | - | - | - | - | ||||||||||
16,875 (3) | 135,000 (3) | 270,000 (3) | - | - | - | - | - | |||||||||||
2/10/2016 | - | - | - | 5,000 | 15,000 (4) | - | 24.98 | 124,300 | ||||||||||
2/10/2016 | - | - | - | - | - | 4,950 (5) | - | 123,651 | ||||||||||
M.A. Garratt | 16,357 (2) | 218,096 (2) | 436,192 (2) | - | - | - | - | - | ||||||||||
14,500 (3) | 116,000 (3) | 232,000 (3) | - | - | - | - | - | |||||||||||
2/10/2016 | - | - | - | 4,300 | 12,900 (4) | - | 24.98 | 106,898 | ||||||||||
2/10/2016 | - | - | - | - | - | 4,250 (5) | - | 106,165 | ||||||||||
C.M. Nikrant | 16,849 (2) | 224,654 (2) | 449,308 (2) | - | - | - | - | - | ||||||||||
15,250 (3) | 122,000 (3) | 244,000 (3) | - | - | - | - | - | |||||||||||
2/10/2016 | - | - | - | 4,517 | 13,550 (4) | - | 24.98 | 112,284 | ||||||||||
2/10/2016 | - | - | - | - | - | 4,500 (5) | - | 112,410 | ||||||||||
S.D. Newlin(1) | - | - | - | - | - | - | - | - |
(1) | Mr. Newlin was ineligible for 2016 awards under both the Annual Plan and the Long-Term Incentive Plan pursuant to the terms of his Letter Agreement. |
Estimated Future Payouts UnderNon-Equity Incentive Plan Awards (columns (c), (d) and (e))
The amounts located in the first row for each Named Executive Officer represent the cash-based award opportunities granted to the Named Executive Officer in 2013 under the Annual Plan. The actual amount earned for 2013 is included in the “Non-Equity Incentive Plan Compensation” column (column (g)) of the 2013 Summary Compensation Table of this proxy statement.
(2) | 2016 Annual Incentive Program Payments. The amounts located in the first row for each Named Executive Officer represent the cash-based award opportunities granted to the Named Executive Officer in 2016 under the 2016 Annual Incentive Program. We established threshold, target and maximum goals for each of the three performance measures specified under the 2016 Annual Incentive Program. Participants will earn, for the applicable performance measure: (1) 100% for the target award upon attainment of the “target” performance level; (2) 50% of the target award upon attainment of the “threshold” performance level; or (3) 200% of the target award upon attainment of the “maximum” (or greater) performance level. If final performance for any measure falls between the threshold and target or between target and maximum, earned award amounts for that measure will be interpolated on a straight-line mathematical basis. If threshold performance is not achieved for any one performance measure, then that performance measure will have an attainment of 0%. For purposes of this table and threshold level disclosure, we assumed that the lowest weighted of the three performance measures achieved the threshold level of attainment (in other words, 7.5% of the target award was earned). Additionally, negative discretion can be used to reduce the payment to essentially zero. Annual Plan payments, if earned, are contingent upon the Named Executive Officer remaining in continuous employment through the payment date. The actual amount earned by each Named Executive Officer for 2016 is included inthe “Non-Equity Incentive Plan Compensation” column of the 2016 Summary Compensation Table of this proxy statement. |
The amounts located in the second row for each Named Executive Officer represent the cash-settled performance units granted in 2013 to the Named Executive Officer under the Amended 2010 Plan as part of the February 15, 2013 annual Long-Term Incentive Plan award. Each performance unit is equal in value to $1.00. These cash-settled performance units are subject to achieving specified performance goals over the performance period from January 1, 2013 to December 31,
(3) | Cash-Settled Performance Units.The amounts located in the second row for each Named Executive Officer represent the cash-settled performance units granted to the Named Executive Officers on February 10, 2016 as part of our 2016 long-term incentive award under the Long-Term Incentive Plan. Each performance unit is equal |
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EXECUTIVE COMPENSATION
2015. The cash-settled performance units will be paid in cash, if earned, contingent upon the Named Executive Officer remaining in continuous employment through the payment date, which shall be in 2016.
For purposes of both of these incentive awards, we established threshold, target and maximum goals. Participants will earn, for the applicable performance period: (1) 100% for the target award upon attainment of the target performance level; (2) 50% of the target award upon attainment of the “threshold” performance level or (3) 200% of the target award upon attainment of the “maximum” (or greater) performance level. If final performance falls between the threshold and target or between target and maximum, earned award amounts will be interpolated. If threshold performance is not achieved, then no award will be paid to the participants.
in value to $1.00. Payouts of these cash-settled performance units are subject to achieving four specified performance goals over the annual and cumulative performance periods from January 1, 2016 to December 31, 2018. We established threshold, target and maximum goals for each of the four performance periods. Participants will earn, for the applicable performance period: (1) 100% for the target award upon attainment of the “target” performance level; (2) 50% of the target award upon attainment of the “threshold” performance level or (3) 200% of the target award upon attainment of the “maximum” (or greater) performance level. If final performance falls between the threshold and target or between target and maximum for any performance period, then the earned award amount for that performance period will be interpolated on a straight-line mathematical basis. If threshold performance is not achieved for any one performance period, then that performance period will have an attainment of 0%. For purposes of this table and threshold level disclosure, we assumed that only one of the four performance periods achieved the threshold level of attainment (in other words, 12.5% of the target award was earned). The cash-settled performance units will be paid in cash, if earned, contingent upon the Named Executive Officer remaining in continuous employment through the payment date, which shall be no later than March 15, 2019. |
Estimated Future Payouts Under Equity Incentive Plan Awards (columns (f) and (g))
Stock Appreciation Rights.These amounts represent stock-settled |
“Threshold” refers to the minimum number of shares underlying the SAR award that will vest upon reaching the threshold level of performance, which is satisfaction of just the first stock price hurdle. Threshold equates to vesting inone-third of the SAR award. If threshold performance is not attained, then the participant will not vest in any of the SARs for the 20132016 award. “Target” refers to the number of shares underlying the SARs that will vest upon satisfaction of all of the stock price hurdles under the 20132016 grant. The SARs do not have a “maximum” level of attainment as a participant cannot receive SARs in excess of the initial award.
The performance shares will be earned contingent upon the achievement of the Synergy Goal resulting from PolyOne’s acquisition of Spartech. If the Synergy Goal is achieved, then the performance shares shall become non-forfeitable and fully vested on March 31, 2016. The Synergy Goal is defined as PolyOne’s achievement on or prior to March 31, 2016 of at least $65 million in collective run-rate synergies attributable to PolyOne’s acquisition of Spartech. Calculating whether the Synergy Goal has been achieved shall be consistent with the calculation used by PolyOne to communicate publicly the synergies achieved from March 31, 2013 through March 31, 2016 as a result of the Spartech acquisition. There is no threshold or maximum award, as the performance shares provide for a single payout, which is reported as the “target” payout. Assuming the Synergy Goal is achieved, the performance shares will be distributed upon vesting. The performance shares have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The dividend equivalent rights are subject to the same restrictions as the underlying performance shares.
All Other Stock Awards: Number of Shares of Stock or Units (RSUs) (column (h))
Annual Grant of RSUs.These amounts represent stock-settled RSUs granted to the Named Executive Officers on February |
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COMPENSATION
A substantial portion of Mr. Diemer’s unvested Long-Term Incentive Plan awards were forfeited as a result of his separation from service under the terms of his applicable grant agreements. For detail regarding the Long-Term Incentive Plan awards that Mr. Diemer forfeited, see footnote (2) to the 2013 Summary Compensation Table of this proxy statement.
Exercise or Base Price of Option Awards (column (i))
In setting the base price of these SARs, we followed the practice of using theour closing stock price on the grant date. This practice is in compliancecomplies with the Amended 2010Long-Term Incentive Plan.
Grant Date Fair Value of Stock and Option Awards (column (j))
The amounts in this column represent the grant date fair value of each equity-based award, computed in accordance with FASB ASC Topic 718. For information regarding the assumptions used in determining the fair value of an award, please refer to Note 15, 14,Share-Based Compensation, in our Annual Report onForm 10-K for the fiscal year ended December 31, 2013.2016.
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63 |
EXECUTIVE COMPENSATION
Narrative Disclosure Relating to the 20132016 Summary Compensation Table and the 20132016 Grants of Plan-Based Awards Table
Employment Agreements
We do not have employment agreements with any of our Named Executive Officers, except for Mr. Newlin.For more information regarding Mr. Newlin’s employment agreement is described in detail in the “Compensation Discussion and Analysis — Employment Agreements with Named Executive Officers” and the “Potential Payments upon Termination or Change of Control” sections of this proxy statement.
SeveranceLetter Agreement with Named Executive Officer
PolyOne and Mr. Diemer agreed that Mr. Diemer would step down from his position as Senior Vice President and Chief Financial Officer effective November 8, 2013. The compensation and benefits Mr. Diemer received and other terms and conditions of his separation from service are set forth inrefer to the “Potential Payments Upon Termination or Change of Control” section of this proxy statement. Except for the RSUs modified in accordance with the Consulting Agreement, Mr. Diemer forfeited all unvested awards under the Long-Term Incentive Plan. For detailsinformation regarding the modified awards,amount of salary and bonus compensation in proportion to total compensation, see the description in footnote (6) to the 2013 Grants“What We Pay and Why: Elements of Plan-Based Awards table of this proxy statement. For details regarding the awards that were forfeited, see footnote (2) to the 2013 Summary Compensation TableCompensation” section of this proxy statement.
Consulting Agreement with Named Executive Officer
On November 5, 2013, Mr. Diemer executed the Consulting Agreement under which he agreed to provide consulting services for a period of eighteen months beginning on November 11, 2013. In consideration for these consulting services, PolyOne modified certain RSUs previously granted to him, which would have otherwise been forfeited under the terms of the applicable grant agreements. The value of the modified awards, determined in accordance with FASB ASC 718, was $753,270 and is reflected in the 2013 Summary Compensation Table and the 2013 Grants of Plan-Based Awards table of this proxy statement. For details regarding the modified awards, see the description in footnote (6) to the 2013 Grants of Plan-Based Awards table of this proxy statement.
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COMPENSATION
Outstanding Equity Awards at 20132016 FiscalYear-End
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name (a) |
| Number of Unexercisable (c) | Equity (#) (d) | Option ($) (e) | Option (f) | Number of (#) (g) | Market ($) (h) | Equity Incentive (#) (i) | Equity Incentive ($) (j) | ||||||||||||||||||||||
| - | - | - | - | - | - | - | ||||||||||||||||||||||||
- | - | - | - | - | - | - | |||||||||||||||||||||||||
- | - | - | - | - | - | - | |||||||||||||||||||||||||
- | - | - | - | - | - | - | 51,756 (6) | 1,658,262 | |||||||||||||||||||||||
- | - | - | - | - | - | ||||||||||||||||||||||||||
- | 1,658,262 | ||||||||||||||||||||||||||||||
30,500 (8) | - | - | 14.81 | 2/16/2021 | - | ||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||
- | - | - | |||||||||||||||||||||||||||||
| 48,800 | - | - | 14.61 | 2/14/2022 | - | - | - | - | ||||||||||||||||||||||
30,700 (10) | - | - | 23.08 | 2/15/2023 | - | - | - | - | |||||||||||||||||||||||
13,667 (11) | - | 6,833 (11) | 35.07 | 2/11/2024 | - | - | - | - | |||||||||||||||||||||||
- | - | 66,700 (12) | 38.27 | 2/4/2025 | - | - | - | - | |||||||||||||||||||||||
- | 105,200 (13) | - | 24.98 | 2/10/2026 | - | - | - | - | |||||||||||||||||||||||
B.C. Richardson | - | - | - | - | - | 7,266 (1) | 232,803 | - | - | ||||||||||||||||||||||
- | - | - | - | - | 6,892 (2) | 220,820 | - | - | |||||||||||||||||||||||
- | - | - | - | - | 8,426 (3) | 269,969 | - | - | |||||||||||||||||||||||
11,600 (11) | - | 5,800 (11) | 35.07 | 2/11/2024 | - | - | - | - | |||||||||||||||||||||||
- | - | 18,700 (12) | 38.27 | 2/4/2025 | - | - | - | - | |||||||||||||||||||||||
- | 25,150 (13) | - | 24.98 | 2/10/2026 | - | - | - | - | |||||||||||||||||||||||
J.V. Van Hulle | - | - | - | - | - | 4,360 (1) | 139,694 | - | - | ||||||||||||||||||||||
- | - | - | - | - | 25,935 (4) | 830,957 | - | - | |||||||||||||||||||||||
- | - | - | - | - | 4,114 (2) | 131,813 | - | - | |||||||||||||||||||||||
- | - | - | - | - | 5,026 (3) | 161,033 | - | - | |||||||||||||||||||||||
- | - | - | - | - | - | - | 25,935 (7) | 830,957 | |||||||||||||||||||||||
13,700 (10) | - | - | 23.08 | 2/15/2023 | - | - | - | - | |||||||||||||||||||||||
6,934 (11) | - | 3,466 (11) | 35.07 | 2/11/2024 | - | - | - | - | |||||||||||||||||||||||
- | - | 11,200 (12) | 38.27 | 2/4/2025 | - | - | - | - | |||||||||||||||||||||||
- | 15,000 (13) | - | 24.98 | 2/10/2026 | - | - | - | - | |||||||||||||||||||||||
M.A. Garratt | - | - | - | - | - | 3,222 (1) | 103,233 | - | - | ||||||||||||||||||||||
- | - | - | - | - | 2,593 (5) | 83,080 | - | - | |||||||||||||||||||||||
- | - | - | - | - | 3,395 (2) | 108,776 | - | - | |||||||||||||||||||||||
- | - | - | - | - | 4,316 (3) | 138,285 | |||||||||||||||||||||||||
5,200 (11) | - | 2,600 (11) | 35.07 | 2/11/2024 | - | - | - | - | |||||||||||||||||||||||
- | - | 9,200 (12) | 38.27 | 2/4/2025 | - | - | - | - | |||||||||||||||||||||||
- | 12,900 (13) | - | 24.98 | 2/10/2026 | - | - | - | - | |||||||||||||||||||||||
C.M. Nikrant | - | - | - | - | - | 3,634 (1) | 116,433 | - | - | ||||||||||||||||||||||
- | - | - | - | - | 3,500 (2) | 112,140 | - | - | |||||||||||||||||||||||
- | - | - | - | - | 4,569 (3) | 146,391 | - | - | |||||||||||||||||||||||
23,300 (9) | - | - | 14.61 | 2/14/2022 | - | - | - | - | |||||||||||||||||||||||
13,700 (10) | - | - | 23.08 | 2/15/2023 | - | - | - | - | |||||||||||||||||||||||
5,800 (11) | - | 2,900 (11) | 35.07 | 2/11/2024 | - | - | - | - | |||||||||||||||||||||||
- | - | 9,300 (12) | 38.27 | 2/4/2025 | - | - | - | - | |||||||||||||||||||||||
- | 13,550 (13) | - | 24.98 | 2/10/2026 | - | - | - | - | |||||||||||||||||||||||
S.D. Newlin | - | - | - | - | - | 37,760 (1) | 1,209,830 | - | - | ||||||||||||||||||||||
137,000 (10) | - | - | 23.08 | 2/15/2023 | - | - | - | - | |||||||||||||||||||||||
60,667 (11) | - | 30,333 (11) | 35.07 | 2/11/2024 | - | - | - | - |
| 64 |
EXECUTIVE COMPENSATION
Represents a |
Represents a stock-settled |
(3) | Represents a stock-settled RSU award that was granted on February 10, 2016 and generally vests in full on the third anniversary of the grant date. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate. |
(4) | Represents a stock-settled RSU award that was granted on March 13, 2014 and generally vests in full on the third anniversary of the grant date. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate. |
(5) | Represents a stock-settled RSU award that was granted on May 15, 2014 and generally vests in full on the third anniversary of the grant date. The award includes shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate. |
(6) | Represents a grant of performance shares on May 15, 2014. If a specified earnings per share goal is met by December 31, 2018 and Mr. Patterson has remained in continuous employment with the Company, then 50,000 performance shares shall becomenon-forfeitable and fully vested on May 15, 2019. If a specified earnings per share goal is met by December 31, 2023 and Mr. Patterson has remained in continuous employment with the Company, then the remaining 50,000 performance shares shall becomenon-forfeitable and fully vested on May 15, 2024. Both awards include shares deemed purchased with reinvested dividend equivalents that are subject to the same forfeiture conditions as the shares to which the dividends relate. |
(7) | Represents |
Represents stock-settled SARs granted on February 16, 2011 that |
Represents stock-settled SARs granted on February 14, 2012 that |
(10) | Represents stock-settled SARs |
(11) | Represents stock-settled SARs granted on February 11, 2014 that vest in increments upon the attainment of stock price hurdles (based on PolyOne’s closing stock price and sustained for thirty consecutive trading days) for our common shares as follows:one-third at $38.58;one-third at $40.33; andone-third at $42.08. The first two stock price hurdles were achieved in 2014. The SARs are |
(12) | Represents stock-settled SARs granted on February 4, 2015 that vest in increments upon the attainment of stock price hurdles (based on PolyOne’s closing stock price and sustained for thirty consecutive trading days) for our common shares as follows:one-third at $42.10;one-third at $44.01; andone-third at $45.92. The stock price hurdles have not been achieved to date. The SARs are also subject generally to time-based vesting inone-third increments on each of the first three anniversaries of the grant date. |
(13) | Represents stock-settled SARs granted on February 10, 2016 that vest in increments upon the attainment of stock price hurdles (based on PolyOne’s closing stock price and sustained for thirty consecutive trading days) for our common shares as follows:one-third at $27.48;one-third at $28.73; andone-third at $29.98. The stock price hurdles were achieved in 2016. The SARs are also subject generally to time-based vesting inone-third increments on each of the first three anniversaries of the grant date. |
65 |
EXECUTIVE COMPENSATION
Number of Securities Underlying Unexercised Options (#) Exercisable (column (b))
This column shows the fully vested and exercisable SARs held by the Named Executive Officers as of December 31, 2013.2016.
Number of Securities Underlying Unexercised Options (#) Unexercisable (column (c))
This column shows the unvested and unexercisable SARs held by the Named Executive Officers as of December 31, 2013.2016.
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (column (d))
There are noThis column shows shares underlying unexercised SARs awarded under any equity incentive planthe Long-Term Incentive Plan that have not been earned.earned as an applicable stock price hurdle has not been met as of December 31, 2016.
Option Exercise Price (column (e))
This column shows the base price for each SAR reported in columncolumns (b), (c) and (c)(d).
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COMPENSATION
Option Expiration Date (column (f))
This column shows the expiration dates for each SAR reported in columns (b), (c) and (c)(d).
Number of Shares or Units of Stock That Have Not Vested (column (g))
This column shows the unvested RSUs held by the Named Executive Officers as of December 31, 2013.2016. The RSUs have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The amounts in this column include all dividend equivalents declared in 2011from 2014 through 20132016 attributable to the awards (including the 4th quarter dividend declared on December 2, 2013,October 13, 2016 to shareholders of record on December 17, 2013,16, 2016, which was paid on January 9, 2014)6, 2017).
Market Value of Shares or Units of Stock That Have Not Vested (column (h))
The market value is determined based on the closing marketstock price of our common shares on December 31, 201330, 2016 ($35.35)32.04).
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (column (i))
This column shows the performance shares held by the Named Executive Officers as of December 31, 20132016 that have not vested and have not been earned. The performance shares have dividend equivalent rights that entitle the grantee to dividend equivalents on each share of our common stock underlying the award equal to the dividend per share declared and paid on our issued and outstanding shares of common stock. The amounts in this column include all dividend equivalents declared in 2013from 2014 through 2016 attributable to the awards (including the 4th quarter dividend declared on December 2, 2013,October 13, 2016 to shareholders of record on December 17, 2013,16, 2016, which was paid on January 9, 2014)6, 2017).
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (column (j))
The market value is determined based on the closing marketstock price of our common shares on December 31, 201330, 2016 ($35.35)32.04).
66 |
EXECUTIVE COMPENSATION
20132016 Option Exercises and Stock Vested
Name (a) | Option Awards | Stock Awards | ||||||||||
Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) | Number of Shares Acquired on Vesting (#) (d) | Value Realized on Vesting ($) (e) | |||||||||
S.D. Newlin | 255,300 | 4,048,607 | 124,077 | 2,863,709 | ||||||||
R.M. Patterson | 63,000 | 1,359,370 | 24,590 | 567,539 | ||||||||
B.C. Richardson | - | - | - | - | ||||||||
R.J. Diemer, Jr. | 10,000 | 175,200 | - | - | ||||||||
T.J. Kedrowski | 21,200 | 272,174 | 13,831 | 319,241 | ||||||||
K.M. Smith | 8,067 | 137,946 | 13,831 | 319,241 |
Option Awards (columns (b) and (c))
Column (b) reports exercises of stock options and SARs during 2013 on an aggregate basis. The value realized on exercise (column (c)) was computed by determining the difference between the market price of the underlying securities at exercise and the exercise price of the options or SARs. All of Mr. Newlin’s transactions involved SARs that were exercised pursuant to a trading plan established under Rule 10b5-1 of the Exchange Act.
Name (a) | Option Awards | Stock Awards | ||||||
Number of Shares (b) | Value Realized on ($) (c) | Number of Shares (d) | Value Realized ($) (e) | |||||
R.M. Patterson | - | - | 40,374 | 1,136,971 | ||||
B.C. Richardson | - | - | 20,713 | 649,560 | ||||
J.V. Van Hulle | - | - | 6,504 | 168,324 | ||||
M.A. Garratt | - | - | 5,175 | 172,121 | ||||
C.M. Nikrant | - | - | 6,504 | 168,324 | ||||
S.D. Newlin | - | - | 167,858 | 4,696,004 |
Stock Awards (columns (d) and (e))
Column (d) reports the vesting and release of RSUs during 20132016 on an aggregate basis. All ofFor all Named Executive Officers except Messrs. Richardson and Garratt, the stock awards include RSUs that vested and were released in 2013 were granted on February 17, 201015, 2013 and releasedsettled on February 17, 2013.15, 2016. For Mr. Richardson the stock awards include RSUs that were granted on November 11, 2013 and settled on November 11, 2016. For Mr. Garratt the stock awards include RSUs that were granted on August 19, 2013 and settled on August 19, 2016. For Mr. Patterson the stock awards also include RSUs that were granted on March 13, 2013 and settled on March 13, 2016. For Mr. Newlin the stock awards also include RSUs that were granted on March 8, 2013 and settled on March 8, 2016. The amounts in this columnthese columns include shares awarded through thea dividend equivalent right feature ofunder the Amended 2010 Plan, which have also been reported in the “All Other Compensation” column of the 2013 Summary Compensation Table of this proxyLong-Term Incentive Plan.
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COMPENSATION
statement. The value realized on releasevesting (column (e)) was computed by multiplying the number of vested RSUs, including the corresponding dividend equivalent rights,equivalents, by the closing marketstock price of the underlying securities on the trading day prior to the vesting date, in accordance with the Amended 2010 Plan.date.
Name | Plan Name | Number of Years
| Present Value of ($) | Payments During Last Fiscal Year ($) | ||||||||||||
R.M. Patterson |
| |||||||||||||||
| - | - | - | |||||||||||||
B.C. Richardson | N/A | - | - | - | ||||||||||||
J.V. Van Hulle | N/A | - | - | - | ||||||||||||
M.A. Garratt | N/A | - | - | - | ||||||||||||
C.M. Nikrant | N/A | - | - | - | ||||||||||||
S.D. Newlin | Supplemental retirement benefit under employment agreement, | as amended | - | |||||||||||||
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(1) | Althoughlump-sum payments are not allowed under the terms of the arrangement, the Present Value of Accumulated Benefit shown above for Mr. Newlin is thelump-sum value as of December 31, |
67 |
Mr. Smith is eligible, along with certain other employees, to receive pension payments under the Qualified Pension Plan, as well as the Benefit Restoration Plan. These plans existed prior to our formation in 2000 through the consolidation of Geon and M.A. Hanna and generally benefited all nonunion employees of Geon.
The Benefit Restoration Plan provides benefits that are in addition to those offered under the Qualified Pension Plan. Benefits are calculated under a formula similar to that of the Qualified Pension Plan, but without the compensation and benefit limits imposed by the Internal Revenue Code. The benefits under the Benefit Restoration Plan are offset by benefits
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EXECUTIVE COMPENSATION
provided under the Qualified Pension Plan. The Qualified Pension Plan makes available a pension that is paid from funds in trust provided through contributions by us. Any pension benefit provided under the Benefit Restoration Plan is paid from our general assets.
The amount of Mr. Smith’s pension depends on a number of factors including monthly Final Average Earnings (“FAE”)Messrs. Patterson, Richardson, Van Hulle, Garratt and years of benefit service to us (“Benefit Service”). FAE is determined 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 contributed by us in the qualified savings plans. 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 2002 Covered Compensation (as defined by the Internal Revenue Code) times Benefit Service limited to 35 years.
A retirement-eligible employee can elect to commence vested benefit payments as early as age 55 in lieu of waiting to age 65. However, the benefit described above is subject to reduction in recognition of the additional payments that are received because of early commencement. The reduction for early retirement is determined differently depending on whether the employee terminated employment before or after attaining age 55. If an employee terminates employment on or after age 55 and commences 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 payment provides that an employee will receive his or her benefit in a lifetime payment with a minimum of 60 monthly payments guaranteed. Married participants receive payments in an actuarially equivalent 50% joint and survivor form. Other actuarially equivalent monthly lifetime forms of payments are available if elected by a married participant with spousal agreement. 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 50% joint and survivor form of payment and then immediately died. The 50% joint and survivor form provides the surviving spouse with monthly lifetime payments at the participant’s normal retirement age equal to 50% of the benefit that otherwise would have been payable. Payments can begin prior to the participant’s normal retirement age but may be reduced for early commencement.
The Qualified Pension Plan and Benefit Restoration Plan were frozen to new entrants effective December 31, 1999. Benefit Service was frozen effective December 31, 2002 in both plans and, effective March 20, 2009, earnings under both plans were frozen for all participants. We decided to freeze these plans following a comprehensive retirement benefits review, during which the Compensation Committee examined whether our retirement programs were consistent with PolyOne goals, including fairness to all associates and competitiveness in the marketplace. With this change, we have a single, competitive retirement plan for our United States-based employees.
Messrs. Diemer, Kedrowski, Newlin, Patterson and RichardsonNikrant do not participate in a defined benefit plan with PolyOne.
We offer a defined contribution retirement benefit to all legacyeligible PolyOne United States employeesparticipants through the Qualified Savings Plan. The Qualified Savings Plan provides employees with individual retirement accounts funded by (1) an automaticPolyOne-paid contribution of 2% of employee eligible earnings, and (2) an employer-paid match on employee contributionsdollar-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. The Internal Revenue Code limits employee contributions to the Qualified Savings Plan to $17,500$18,000 ($23,00024,000 for participants over age 50), and earnings upon which employee/employer contributions may be made are limited to $255,000$265,000 in 2013.
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COMPENSATION
2016.
The PolyOne Supplemental Retirement Benefit 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. Together, these plans are intended to provide the Named Executive Officers with retirement income equivalent to that provided to all other employees who are not impacted by the Internal Revenue Code limitations 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.
During 2008, the Compensation Committee reviewed Mr. Newlin’s total compensation package among the peer companies and across the broader general industry. The Compensation Committee determined that it was in the best interests of PolyOne and our shareholders to provide a supplemental retirement benefit for him that would be competitive with industry practices and serve as an additional retention vehicle. Thus,The retirement benefits under Mr. Newlin’s employment agreement (which provides for the terms of Mr. Newlin’s employment) was amended and restated on February 21, 2008 to comply with Code Section 409A, and further amended and restated on July 16, 2008 to include certain retirement benefits and further amended and restated on March 6, 2014 in connection with his retirement as President and Chief Executive Officer and transition to Executive Chairman, effective May 15, 2014. Specifically, the employment agreement was amended to provide that upon a Qualifying Separation from Service (as defined below), Mr. Newlin will be entitled to annual supplemental retirement payments, payableLetter Agreement are described below in the form“Potential Payments Upon Termination or Change in Control” section of a 15-year certain and continuous life annuity, conditioned upon Mr. Newlin’s execution of a release and waiver. If Mr. Newlin dies or incurs a disability prior to a Qualifying Separation from Service (as defined below), he or his designated beneficiary will be entitled to certain supplemental retirement payments. Generally, the definition of a Qualifying Separation from Service is (1) Mr. Newlin attains the age of 55 (he is now 61) and has at least five years of service with us (he now has eight), is serving as Chairman and Chief Executive Officer at the time of his retirement (provided that if the Board, in its sole discretion, has identified a suitable successor for the position of Chief Executive Officer, he only needs to be serving as Chairman at the time of his retirement) and the Board, in its sole discretion, has identified a suitable successor to the position of Chief Executive Officer; or (2) Mr. Newlin’s employment is involuntarily terminated other than for Serious Cause (as defined in his employment agreement) or Mr. Newlin terminates employment for good reason following a change of control of PolyOne. Under the terms of the amended and restated employment agreement, he will also be treated as a retiree for purposes of any SARs, RSUs, performance shares and cash-settled performance units awarded to him as long-term incentive awards. In addition, he and his eligible dependents will have access to the same retiree medical benefits made available to all retirement eligible employees under our standard retiree medical benefit program, to the extent we continue to maintain such programs for the benefit of our retirees and their eligible dependents. Notwithstanding the foregoing, Mr. Newlin will forfeit his rights to receive the supplemental retirement payments and retiree medical benefits if he engages in any conduct prohibited by his non-competition agreement or any acts that constitute fraud, embezzlement, or disclosure of confidential information or deliberate dishonesty.this proxy statement.
20132016 Nonqualified Deferred Compensation
Name | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($)(2) | Aggregate Earnings in Last FY ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(4) | Aggregate Balance at 12/31/2012 ($)(5) | Aggregate ($) | Executive Contributions in Last FY ($)(2) | Registrant Contributions in Last FY ($)(3) | Aggregate ($)(4) | Aggregate Distributions ($) | Aggregate ($)(1)(5) | ||||||||||||||||||||||||||||||||||
S.D. Newlin | 166,018 | 182,237 | 30,296 | - | 1,991,132 | 1,612,581 | ||||||||||||||||||||||||||||||||||||||||
R.M. Patterson | 165,478 | 62,715 | 344,477 | - | 1,686,376 | 1,113,706 | 2,457,726 | 176,289 | 66,967 | 152,317 | - | 2,853,299 | ||||||||||||||||||||||||||||||||||
B.C. Richardson | 10,000 | 3,250 | 183 | - | 13,433 | - | 371,294 | 126,738 | 29,815 | 33,765 | - | 561,612 | ||||||||||||||||||||||||||||||||||
R.J. Diemer, Jr. | 375,337 | 34,494 | 79,335 | - | 655,218 | 166,052 | ||||||||||||||||||||||||||||||||||||||||
T.J. Kedrowski | 12,881 | 25,198 | 64,930 | - | 275,494 | 172,485 | ||||||||||||||||||||||||||||||||||||||||
K.M. Smith | 26,985 | 31,618 | (4,180) | - | 639,181 | 584,758 | ||||||||||||||||||||||||||||||||||||||||
J.V. Van Hulle | 665,107 | 18,145 | 25,065 | 12,039 | - | 720,356 | ||||||||||||||||||||||||||||||||||||||||
M.A. Garratt | 120,197 | 53,268 | 13,729 | 15,972 | - | 203,166 | ||||||||||||||||||||||||||||||||||||||||
C.M. Nikrant | 386,632 | 50,036 | 19,628 | 32,033 | - | 488,329 | ||||||||||||||||||||||||||||||||||||||||
S.D. Newlin | 2,692,338 | - | 3,127 | 40,331 | 2,735,796(6) | - |
(1) | Includes amounts reported as compensation for the Named Executive Officers in our summary compensation tables for previous years. The following aggregate amounts of executive and employer contributions were included in our summary compensation tables for fiscal years 2006 - 2015. |
Name | Executive Contributions FY 2006 – 2015 ($) | Registrant Contributions FY 2006 – 2015 ($) | ||
R.M. Patterson | 1,316,954 | 412,339 | ||
B.C. Richardson | 299,007 | 74,590 | ||
J.V. Van Hulle | 67,995 | 62,389 | ||
M.A. Garratt | - | - | ||
C.M. Nikrant | 53,170 | 23,969 | ||
S.D. Newlin | 1,176,561 | 1,289,828 |
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EXECUTIVE COMPENSATION
These |
Name | 2013 “Salary” ($) | 2013 “Non-Equity Incentive Plan ($) | 2016 “Salary” Column ($) | 2016 “Non-Equity Incentive ($) | ||||||||
S.D. Newlin | 53,307 | 112,711 | ||||||||||
R.M. Patterson | 69,935 | 95,543 | 121,154 | 55,135 | ||||||||
B.C. Richardson | 10,000 | - | 98,915 | 27,823 | ||||||||
R.J. Diemer, Jr. | 184,394 | 190,943 | ||||||||||
T.J. Kedrowski | 12,881 | - | ||||||||||
K.M. Smith | 18,876 | 8,109 | ||||||||||
J.V. Van Hulle | 18,145 | - | ||||||||||
M.A. Garratt | 52,817 | 451 | ||||||||||
C.M. Nikrant | 43,408 | 6,628 | ||||||||||
S.D. Newlin | - | - |
This column contains contributions by us in the last fiscal year under the PolyOne Supplemental Retirement Benefit Plan, which provides for benefits in excess of amounts permitted to be contributed under our |
Company Contribution | Newlin | Patterson | Richardson | Diemer (*) | Kedrowski | Smith | ||||||||||||||||||
Company Match | $126,164 | $43,418 | $2,250 | $23,880 | $15,108 | $21,889 | ||||||||||||||||||
Retirement Contribution | $56,073 | $19,297 | $1,000 | $10,614 | $10,090 | $9,729 |
* In accordance with the administrative procedures of the PolyOne Supplemental Retirement Benefit Plan, Mr. Diemer’s Retirement Contribution will be forfeited on the first day of the seventh month following his separation from service.
Name | Company Match ($) | Retirement Contribution ($) | ||
R.M. Patterson | 46,362 | 20,605 | ||
B.C. Richardson | 20,641 | 9,174 | ||
J.V. Van Hulle | 17,353 | 7,712 | ||
M.A. Garratt | 9,505 | 4,224 | ||
C.M. Nikrant | 13,589 | 6,039 | ||
S.D. Newlin | 1,616 | 1,511 |
All of these amounts are included in the “All Other Compensation” column of the 20132016 Summary Compensation Table.Table of this proxy statement.
Because amounts included in this column do not include above-market or preferential earnings, none of these amounts are included under the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the |
A portion of the balance reflected in the table represents amounts earned by the |
Name | Executive Contributions FY 2006 — 2012 ($) | Registrant Contributions FY 2006 — 2012 ($) | ||||
S.D. Newlin | 714,812 | 782,881 | ||||
R.M. Patterson | 718,312 | 180,662 | ||||
B.C. Richardson | - | - | ||||
R.J. Diemer, Jr. | - | - | ||||
T.J. Kedrowski | 48,083 | 65,697 | ||||
K.M. Smith | 129,127 | 161,791 |
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COMPENSATION
We currently offer participation in a nonqualified deferred compensation retirement plan, called the PolyOne Supplemental Retirement Benefit Plan, to specified employees that include the Named Executive Officers. This plan is an unfunded, nonqualified 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 50% of their salary and annual bonus into the plan. The amounts deferred are credited to accounts selected by the executiveNamed Executive Officer that mirror the investment alternatives available in our qualified retirement plan,Qualified Savings Plan, except that participantsthey cannot elect the PolyOne stock fund with respect to amounts deferred under the nonqualified plan.PolyOne Supplemental Retirement Benefit Plan. Each Named Executive Officer who is a participantparticipates in the PolyOne Supplemental Retirement Benefit Plan is 100% vested in that portion of histheir account that is attributable to elective deferrals and the Company Match. Further, Named Executive Officers who are participantsparticipate 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 executivethem within 30 days of the date of the executive’stheir termination of employment with us in the form of payment they selected by the executive (lump-sum(lump-sum payment or payment in installments over a period not exceeding 10 years) on an election form received by us.
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EXECUTIVE COMPENSATION
The PolyOne Supplemental Retirement Benefit Plan and the frozen plan areis subject to the rules of Code Section 409A, which restricts 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 following the executive’stheir separation from service with us.
Potential Payments Upon Termination or Change of Control
Summary of Potential Payments
Except for Mr. Diemer, our Named Executive Officers’ employment may be terminated under several possible scenarios. In certain of these scenarios, ourOur plans, agreements, arrangements or typical practices would provide severance benefits to our Named Executive Officers (except Mr. Newlin) in varying amounts to the executive.executive under certain scenarios. We do not have employment agreements with our Named Executive Officers other than Mr. Newlin. We do have management continuity agreements (“Continuity Agreements”) with each of our other Named Executive Officers that provide for specified benefits upon a termination of employment following a change of control, and each of our Named Executive Officers (other than Mr. Newlin) participatesparticipate in our Executive Severance Plan. Further, other Company plans, agreements and arrangements may provide for specified benefits upon a change of control (or for acceleration of such benefits). Severance and other benefits that are payable upon a termination of employment or upon a change of control are described below. The table following thethis narrative discussion summarizes the amounts payable upon termination or a change of control under certain circumstances to our current Named Executive Officers (except Mr. Newlin), assuming that the executive’s employment terminated on December 31, 2013.30, 2016.
Management Continuity Agreements
We have entered into management continuity agreements (referred to as the “Continuity Agreements”)Continuity Agreements with all of our elected corporate officers, including each of the Named Executive Officers. The Continuity Agreements serve to encourage these key executives to carry out their duties and provide continuity of management in the event of a “change of control” of PolyOne. For these purposes, “change of control” has the meaning ascribed to such term in the Continuity Agreement. The Named Executive Officers are generally provided with severance protection for a period of two or three years (depending on(for Mr. Patterson) and two years (for the executive)other Named Executive Officers) should his or her employment be terminated either by us without cause or by the executive for good reason (as defined in the Continuity Agreements) following a change of control. The Continuity Agreements are automatically renewed each year unless we give prior notice of termination and do not provide any assurance of continued employment. For these purposes, “change of control”, “cause” and “good reason” have the meanings ascribed to such terms in the Continuity Agreements.
If a change of control occurs and the Named Executive Officer’s employment is terminated by us or a successor for reasons other than “cause” or is terminated voluntarily by the individual for “good reason”reason,” in each case during the severance protection period, then the Continuity Agreements generally provide that the individual would be entitled to receive:
· | Alump-sum payment equal to two or three years (depending on the executive) of the base salary in effect immediately prior to the change of control, or if greater, on the termination date; |
· | Alump-sum payment equal to two or three times (depending on the executive) the executive’s targeted Annual Incentive Amount, as that term is defined the Continuity Agreement, in effect prior to the change of control; |
· | Employee health and welfare benefits (excluding the long-term disability plan) for up to two or three years (depending on the executive) at active employee rates; |
· | An allowance equal to one year of financial planning/tax preparation that the executive was entitled to receive prior to the change of control; |
· | Alump-sum payment equal to the employer 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 anyso-called “golden parachute” payments made under the agreements (but only for Named Executive Officers with “grandfathered” Continuity Agreements). In 2011, the Compensation Committee eliminated the taxgross-up benefit for so called “excess parachute payments” under Code Section 280G from the Continuity Agreements provided to Named Executives Officers who were hired in or who had Continuity Agreements amended in 2011 and thereafter. |
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EXECUTIVE COMPENSATION
None of financial planning/tax preparation that the executive was entitled to receive prior to theagreements contain a single trigger or a modified single trigger for benefits. The Continuity Agreements do not provide for benefits upon death or disability following a change of control;
For these purposes “cause” and “good reason” have the meanings ascribed to such terms in the Continuity Agreements. For the CEO, during 2013, “good reason” also included his election to terminate employment for any reason during the30-day period immediately following the first anniversary of the change of control; however, this provision was eliminated in connection with an amendment to the agreement, as further explained below.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, arrangement or legal requirement, the executive would be entitled to payment under the Continuity Agreement or such other applicable plan, program, agreement, arrangement or legal requirement, whichever provides for greater benefits, but would not be entitled to benefits under both the Continuity Agreement and such other plan, program, agreement, arrangement or legal requirement.
In addition, in order to receive payment and benefits under the Continuity Agreement, the Named Executive Officer must execute a release of claims against PolyOne and comply with confidentiality,non-compete andnon-solicitation covenants for two or three years, depending on the executive.
Employment Agreement with Mr. Newlin
We have entered into an employment agreement with Mr. Newlin, pursuant to which he serves as our Chairman, President and Chief Executive Officer. No other Named Executive Officer executed an employment agreement. The agreement provides that if (1) Mr. Newlin’s employment is terminated by us without Serious Cause (as defined below), (2) Mr. Newlin is not otherwise entitled to receive benefits under his Continuity Agreement (discussed above), (3) Mr. Newlin agrees to standard non-compete and non-solicitation covenants for a period of 36 months following the date of termination and (4) Mr. Newlin executes a release of claims against PolyOne, he will be entitled to 36 months of salary continuation, car allowance and financial planning/tax preparation allowance, an annual incentive amount as earned for the year in which the termination of employment occurs and reimbursement for the costs previously paid by us while Mr. Newlin was employed for the continued coverage in our medical and dental plans for 24 months (but not life insurance, short-term disability or long-term disability), plus any taxes imposed as a result of such reimbursement.
Mr. Newlin is also entitled to supplemental retirement benefits under his employment agreement if his employment is involuntarily terminated other than for Serious Cause or if Mr. Newlin terminates employment for “good reason” (as defined above) following a change of control. For this purpose, Serious Cause has the meaning ascribed to such term in the PolyOne Employee Transition Plan as amended from time to time, and also includes any breach of the employment agreement or certain other agreements between us and Mr. Newlin. These supplemental retirement benefits are described more fully in the “2013 Pension Benefits” section of this proxy statement.
In connection with his retirement as President and Chief Executive Officer and transition to Executive Chairman, Mr. Newlin’s employment agreement was amended, effective May 15, 2014, to provide for various changes in recognition of his new role. Among other changes, Mr. Newlin’s employment agreement will provide that his management continuity agreement is amended to remove as “good reason” an election to terminate employment for any reason during the 30-day period immediately following the first anniversary of a change of control. Furthermore, Mr. Newlin will be entitled to substantially the same severance benefits as described above if Mr. Newlin terminates his employment for Good Reason (as defined below). Good Reason is generally defined as a material diminution in authority, duties or responsibilities or any action or inaction by the Company that constitutes a material breach of Mr. Newlin’s employment agreement.
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COMPENSATION
Executive Severance Plan
Effective May 25, 2006, and as amended most recently effective February 17, 2009,May 15, 2014, the Compensation Committee adopted the Executive Severance Plan. The Executive Severance Plan provides for severance payments upon certain terminations of employment to our executive officersNamed Executive Officers and other elected officers who are expected to make substantial contributions to our success and thereby provide for stability and continuity of operations. All of the Named Executive Officers participate in the Executive Severance Plan except Mr. Newlin, whose severance benefits are provided through his employment agreement.Letter Agreement.
The Executive Severance Plan provides that, if PolyOne terminates the employment of a Named Executive Officer for any reason other than cause,Cause (as defined in the Executive Severance Plan), death or disability, then 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 payment in an amount equal to the Named Executive Officer’s annual bonus under the Annual Plan as earned for the year in which the separation occurs; |
· | Reimbursement for the costs previously paid by us for continued coverage for two years in our medical, dental and vision plans, plus any taxes imposed as a result of such reimbursement; and |
· | Fees for outplacement benefits for a period of 12 months. |
We do not have to make payments to Named Executive Officers under the Executive Severance Plan if they are entitled to receive payment under a Continuity Agreement discussed above. In addition, in order to receive payments under the Executive Severance Plan, the Named Executive Officer must execute a release of claims against us and is subject to confidentiality,non-compete,non-solicitation andnon-disparagement covenants during thetwo-year severance period.
SeveranceEmployment Agreement with Former ExecutiveMr. Newlin
PolyOneMr. Newlin retired from the Company on July 1, 2016 and Mr. Diemer agreed that Mr. Diemer would step down from his position as Senior Vice President and Chief Financial Officer effective November 8, 2013. In conjunction with his departure, Mr. Diemer received the benefits that he wasbecame entitled to the payments and benefits provided under his Letter Agreement, consisting of (1) annual supplemental retirement payments in the Executive Severance Plan. The benefits include: $910,000 representing 24 monthsform of salary continuation,a15-year certain and continuous life annuity, conditioned upon Mr. Newlin’s execution of a payment equalrelease and waiver, (2) for Mr. Newlin and his eligible dependents, access to the amount calculatedsame retiree medical benefits made available to all retirement eligible employees under our standard retiree medical benefit program, to the Annual Planextent we continue to maintain such programs, and (3) other benefits as earned in 2013 of $421,071 (which will be paid in 2014 at the same time as all Named Executive Officer Annual Plan payments), a payment of $17,500 for accrued but unused vacation, 24 months of accrued post-separation medical, vision and dental coverage reimbursements totaling $48,291 and accrued post-separation outplacement services totaling $8,300. Any of the above noted items that are deemed to be deferred compensation pursuant to Code Section 409A are subject to a six month delay, and will be paid the first day of the seventh month following his separation from service.
PolyOne and Mr. Diemer executed the Severance Agreement whereby Mr. Diemer provided a release of claims, and an acknowledgement that he remains subject to certain confidentiality, non-competition and non-interference obligations.
A portionpreviously described. The details of Mr. Diemer’s unvested Long-Term Incentive Plan awards were forfeited as a resultNewlin’s Letter Agreement are described above in the “Other Aspects of his separation from service pursuant to the terms of the applicable grant agreements. For details regarding the awards that were forfeited, see the description in footnote (2) to the 2013 SummaryOur Compensation TablePrograms” section of this proxy statement.
Consulting Agreement with Former Executive
On November 5, 2013, Mr. Diemer entered into the Consulting Agreement with PolyOne, under which he agreed to provide consulting services for a period of eighteen months, beginning on November 11, 2013. In consideration for these consulting services, PolyOne modified certain RSUs previously granted to him, which would have otherwise been forfeited under the terms of his applicable grant agreements upon his separation from service. For detail regarding the modified awards, see the description in footnote (6) to the 2013 Grants of Plan-Based Awards table of this proxy statement. For details regarding the awards that were forfeited, see footnote (2) to the 2013 Summary Compensation Table of this proxy statement.
Annual Plan
All of our Named Executive Officers, except Mr. Newlin, participate in the Annual Plan. The Annual Plan provides that, if a change of control occurs, we are required to pay each participant an interimlump-sum cash payment equal to the product of the number
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COMPENSATION
of months that have elapsed in the calendar year in which the change of control occurs and
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EXECUTIVE COMPENSATION
one-twelfth of the participant’s target annual incentive award opportunity in effect prior to the change of control. We have the obligation to make a final payment under the terms of the Annual Plan for the plan year in which the change of control occurs, but may offset the amount of any interim payment made. For these purposes “change of control” has the meaning ascribed to such term in the Annual Plan. In addition, participants receive a payout, as earned, upon their death, disability or retirement after the first quarter of the Annual Plan year.
Equity/Long-Term Incentive Awards
Each of the grant agreements evidencing outstanding awards of RSUs, stock options, SARs, cash-settled performance units and performance shares provide that the vesting of such award will accelerate upon a change of control. In the event of a change of control, cash-settled performance units for which all performance periods are completed as of December 31, 2016 are valued at actual attainment, and cash-settled performance units for which all performance periods are not completed as of December 31, 2016 are valued at target attainment. For this purpose, a “change of control” is defined in the Amended 2010Long-Term Incentive Plan. The grant agreements also provide for prorated vesting upon death, disability and retirement, as those terms are defined in the grant agreements, with the exception of Mr. Newlin’s March 8, 2013 RSU award, (which provides for fulloutstanding awards, which were modified by his Letter Agreement to eliminate any prorated vesting upon retirement)provisions, as well as the May 15, 2014 performance shares granted to Mr. Patterson and the March 13, 20132014 performance shares and RSUs granted to Messrs. Patterson and Kedrowski (whichMr. Van Hulle (all of which do not provide for prorated vesting upon retirement). In the event of a death, disability or retirement, as those terms are defined in the grant agreements, cash-settled performance units for which all performance periods are completed as of December 31, 2016 are valued at actual attainment and cash-settled performance units for which all performance periods are not completed as of December 31, 2016 are valued at target attainment.
Retirement Benefits
Our defined benefit retirement plans applicable to Mr. Smith also have provisions relating to the termination of his employment with us. Mr. Newlin’s supplemental retirement benefit under his employment agreementLetter Agreement also has provisions relating to the termination of his employment with us. These payments are described more fully in the disclosure provided in connection with the 2013“2016 Pension Benefits tableBenefits” section of this proxy statement.
The PolyOne Supplemental Retirement Benefit Plan that is made available to all of our Named Executive Officers has provisions relating to the termination of employment with PolyOne. These payments are described more fully in the disclosure provided in connection with the 2013“2016 Nonqualified Deferred Compensation tableCompensation” section of this proxy statement.
Payments and Benefits Upon Termination — As of the End of Fiscal Year 20132016
The following table summarizes the amounts payable to the Named Executive Officers (except for Mr. Diemer)Newlin) upon termination under specified circumstances or upon a change of control. The data below assumes that each triggering event listed in the tables occurred on December 31, 201330, 2016 and that the stock price for our common shares is $35.35,was $32.04, the closing marketstock price of our common shares on December 31, 2013.30, 2016.
Name | Benefits and Payments | Voluntary Termination ($) | Retirement(1) ($) | Disability ($) | Death ($) | Involuntary Termination with Cause ($) | Involuntary Termination without Cause ($) | Involuntary Termination without Cause or for Good Reason Following a Change of Control ($) | Benefits and Payments | Voluntary Termination ($) | Retirement (1) ($) | Disability ($) | Death ($) | Involuntary Termination with Cause ($) | Involuntary ($) | Termination ($) | ||||||||||||||||||||||||||||||||||||||
S.D. Newlin | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
R.M. Patterson | Cash Severance Benefit (2) | - | - | - | - | - | 2,563,869 | 6,127,500 | ||||||||||||||||||||||||||||||||||||||||||||||
Cash Severance Benefit (2) | - | - | - | - | - | 3,150,000 | 6,615,000 | Annual Incentive for Year of Termination | - | - | 663,869 | 663,869 | - | - | 1,048,269 | |||||||||||||||||||||||||||||||||||||||
Annual Incentive for Year of Termination | - | 1,989,890 | 1,989,890 | 1,989,890 | - | 1,989,890 | 1,989,890 | Cash-Settled Performance Units (3) | - | - | 1,204,630 | 1,204,630 | - | - | 2,094,446 | |||||||||||||||||||||||||||||||||||||||
Cash-Settled Performance Units (3) | - | 4,503,703 | 4,503,703 | 4,503,703 | - | 4,503,703 | 5,581,625 | Restricted Stock Units (4) | - | - | 1,096,697 | 1,096,697 | - | - | 2,184,231 | |||||||||||||||||||||||||||||||||||||||
Restricted Stock Units (4) | - | 9,603,609 | 7,014,971 | 7,014,971 | - | 9,603,609 | 12,734,543 | Performance Shares (5) | - | - | 1,304,829 | 1,304,829 | - | - | 3,302,940 | |||||||||||||||||||||||||||||||||||||||
Unexercisable Stock Options/SARs (4) | - | 4,443,320 | 4,443,320 | 4,443,320 | - | 4,443,320 | 5,969,886 | Unexercisable Stock Options/SARs (4) | - | - | 404,559 | 404,559 | - | - | 742,712 | |||||||||||||||||||||||||||||||||||||||
Health and Welfare Benefits (6) | - | - | - | - | - | 48,291 | 72,436 | Health and Welfare Benefits (6) | - | - | - | - | - | 60,816 | 91,224 | |||||||||||||||||||||||||||||||||||||||
Other Benefits (7) | - | - | - | - | - | 72,000 | - | Financial Planning Services (7) | - | - | - | - | - | - | 13,000 | |||||||||||||||||||||||||||||||||||||||
Financial Planning Services (8) | - | - | - | - | - | 39,000 | 13,000 | Outplacement Benefits | - | - | - | - | - | 8,300 | - | |||||||||||||||||||||||||||||||||||||||
Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 429,980 | Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 398,290 | |||||||||||||||||||||||||||||||||||||||
Excise Tax Gross-up (9) | - | - | - | - | - | - | - | Excise TaxGross-up (8) | - | - | - | - | - | - | 5,951,982 | |||||||||||||||||||||||||||||||||||||||
Incremental Pension Benefit (10) | - | - | - | - | - | - | - |
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EXECUTIVE COMPENSATION
Name | Benefits and Payments | Voluntary Termination ($) | Retirement(1) ($) | Disability ($) | Death ($) | Involuntary Termination with Cause ($) | Involuntary Termination without Cause ($) | Involuntary Termination without Cause or for Good Reason Following a Change of Control ($) | ||||||||
R.M. Patterson | ||||||||||||||||
Cash Severance Benefit (2) | - | - | - | - | - | 1,102,000 | 2,810,100 | |||||||||
Annual Incentive for Year of Termination | - | - | 664,619 | 664,619 | - | 664,619 | 664,619 | |||||||||
Cash-Settled Performance Units (3) | - | - | 910,004 | 910,004 | - | - | 1,147,388 | |||||||||
Restricted Stock Units (4) | - | - | 1,463,625 | 1,463,625 | - | - | 2,793,905 | |||||||||
Performance Shares (5) | - | - | 238,427 | 238,427 | - | - | 889,642 | |||||||||
Unexercisable Stock Options/SARs (4) | - | - | 929,177 | 929,177 | - | - | 1,260,233 | |||||||||
Health and Welfare Benefits (6) | - | - | - | - | - | 53,313 | 79,969 | |||||||||
Financial Planning Services (8) | - | - | - | - | - | - | 10,000 | |||||||||
Outplacement Benefits | - | - | - | - | - | 8,300 | - | |||||||||
Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 182,660 | |||||||||
Excise Tax Gross-up (9) | - | - | - | - | - | - | 2,048,079 | |||||||||
B.C. Richardson | ||||||||||||||||
Cash Severance Benefit (2) | - | - | - | - | - | 1,040,000 | 1,144,849 | |||||||||
Annual Incentive for Year of Termination | - | - | 56,485 | 56,485 | - | 56,485 | 56,485 | |||||||||
Cash-Settled Performance Units (3) | - | - | - | - | - | - | - | |||||||||
Restricted Stock Units (4) | - | - | 32,946 | 32,946 | - | - | 708,652 | |||||||||
Unexercisable Stock Options/SARs (4) | - | - | - | - | - | - | - | |||||||||
Health and Welfare Benefits (6) | - | - | - | - | - | 48,291 | 48,291 | |||||||||
Financial Planning Services (8) | - | - | - | - | - | - | 10,000 | |||||||||
Outplacement Benefits | - | - | - | - | - | 8,300 | - | |||||||||
Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 111,540 | |||||||||
T.J. Kedrowski | ||||||||||||||||
Cash Severance Benefit (2) | - | - | - | - | - | 800,000 | 1,834,742 | |||||||||
Annual Incentive for Year of Termination | - | - | 380,581 | 380,581 | - | 380,581 | 380,581 | |||||||||
Cash-Settled Performance Units (3) | - | - | 457,508 | 457,508 | - | - | 572,100 | |||||||||
Restricted Stock Units (4) | - | - | 856,879 | 856,879 | - | - | 1,836,687 | |||||||||
Performance Shares (5) | - | - | 238,427 | 238,427 | - | - | 889,642 | |||||||||
Unexercisable Stock Options/SARs (4) | - | - | 455,304 | 455,304 | - | - | 615,195 | |||||||||
Health and Welfare Benefits (6) | - | - | - | - | - | 29,572 | 44,358 | |||||||||
Financial Planning Services (8) | - | - | - | - | - | - | 10,000 | |||||||||
Outplacement Benefits | - | - | - | - | - | 8,300 | - | |||||||||
Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 120,900 | |||||||||
Excise Tax Gross-up (9) | - | - | - | - | - | - | - | |||||||||
K.M. Smith | ||||||||||||||||
Cash Severance Benefit (2) | - | - | - | - | - | 760,000 | 1,767,000 | |||||||||
Annual Incentive for Year of Termination | - | 354,418 | 354,418 | 354,418 | - | 354,418 | 354,418 | |||||||||
Cash-Settled Performance Units (3) | - | 463,333 | 463,333 | 463,333 | - | 463,333 | 571,825 | |||||||||
Restricted Stock Units (4) | - | 755,258 | 755,258 | 755,258 | - | 755,258 | 1,459,425 | |||||||||
Unexercisable Stock Options/SARs (4) | - | 447,431 | 447,431 | 447,431 | - | 447,431 | 600,471 | |||||||||
Health and Welfare Benefits (6) | - | - | - | - | - | 29,572 | 44,358 | |||||||||
Financial Planning Services (8) | - | - | - | - | - | - | 10,000 | |||||||||
Outplacement Benefits | - | - | - | - | - | 8,300 | - | |||||||||
Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 114,860 | |||||||||
Excise Tax Gross-up (9) | - | - | - | - | - | - | - | |||||||||
Incremental Pension Benefit (10) | 10,818 | 10,818 | 10,818 | - | 10,818 | 10,818 | 10,818 |
Name | Benefits and Payments | Voluntary Termination ($) | Retirement (1) ($) | Disability ($) | Death ($) | Involuntary Termination with Cause ($) | Involuntary ($) | Termination ($) | ||||||||||||||||||
B.C. Richardson | Cash Severance Benefit (2) | - | - | - | - | - | 1,360,046 | 1,864,500 | ||||||||||||||||||
Annual Incentive for Year of Termination | - | - | 230,046 | 230,046 | - | - | 363,250 | |||||||||||||||||||
Cash-Settled Performance Units (3) | - | - | 535,172 | 535,172 | - | - | 758,794 | |||||||||||||||||||
Restricted Stock Units (4) | - | - | 442,922 | 442,922 | - | - | 720,580 | |||||||||||||||||||
Unexercisable Stock Options/SARs (4) | - | - | 96,722 | 96,722 | - | - | 177,559 | |||||||||||||||||||
Health and Welfare Benefits (6) | - | - | - | - | - | 32,976 | 32,976 | |||||||||||||||||||
Financial Planning Services (7) | - | - | - | - | - | - | 10,000 | |||||||||||||||||||
Outplacement Benefits | - | - | - | - | - | 8,300 | - | |||||||||||||||||||
Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 121,190 | |||||||||||||||||||
J.V. Van Hulle | Cash Severance Benefit (2) | - | - | - | - | - | 1,003,709 | 1,410,500 | ||||||||||||||||||
Annual Incentive for Year of Termination | - | 93,709 | 93,709 | 93,709 | - | - | 247,712 | |||||||||||||||||||
Cash-Settled Performance Units (3) | - | 320,101 | 320,101 | 320,101 | - | 320,101 | 453,740 | |||||||||||||||||||
Restricted Stock Units (4) | - | 265,067 | 1,038,961 | 1,038,961 | - | 265,067 | 1,258,275 | |||||||||||||||||||
Performance Shares (5) | - | - | 773,894 | 773,894 | - | - | 827,529 | |||||||||||||||||||
Unexercisable Stock Options/SARs (4) | - | 57,687 | 57,687 | 57,687 | - | 57,687 | 105,900 | |||||||||||||||||||
Health and Welfare Benefits (6) | - | - | - | - | - | 48,408 | 48,408 | |||||||||||||||||||
Financial Planning Services (7) | - | - | - | - | - | - | 10,000 | |||||||||||||||||||
Outplacement Benefits | - | - | - | - | - | 8,300 | - | |||||||||||||||||||
Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 91,680 | |||||||||||||||||||
M.A. Garratt | Cash Severance Benefit (2) (8) | - | - | - | - | - | 985,766 | 957,976 | ||||||||||||||||||
Annual Incentive for Year of Termination | - | - | 175,766 | 175,766 | - | - | 218,096 | |||||||||||||||||||
Cash-Settled Performance Units (3) | - | - | 251,495 | 251,495 | - | - | 364,805 | |||||||||||||||||||
Restricted Stock Units (4) | - | - | 281,376 | 281,376 | - | - | 431,546 | |||||||||||||||||||
Unexercisable Stock Options/SARs (4) | - | - | 49,611 | 49,611 | - | - | 91,074 | |||||||||||||||||||
Health and Welfare Benefits (6) | - | - | - | - | - | 55,128 | 55,128 | |||||||||||||||||||
Financial Planning Services (7) | - | - | - | - | - | - | 10,000 | |||||||||||||||||||
Outplacement Benefits | - | - | - | - | - | 8,300 | - | |||||||||||||||||||
Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 81,610 | |||||||||||||||||||
C.M. Nikrant | Cash Severance Benefit (2) | - | - | - | - | - | 932,355 | 1,302,000 | ||||||||||||||||||
Annual Incentive for Year of Termination | - | 92,355 | 92,355 | 92,355 | - | - | 224,654 | |||||||||||||||||||
Cash-Settled Performance Units (3) | - | 269,807 | 269,807 | 269,807 | - | 269,807 | 387,450 | |||||||||||||||||||
Restricted Stock Units (4) | - | 225,978 | 225,978 | 225,978 | - | 225,978 | 373,394 | |||||||||||||||||||
Unexercisable Stock Options/SARs (4) | - | 52,110 | 52,110 | 52,110 | - | 52,110 | 95,663 | |||||||||||||||||||
Health and Welfare Benefits (6) | - | - | - | - | - | 32,976 | 32,976 | |||||||||||||||||||
Financial Planning Services (7) | - | - | - | - | - | - | 10,000 | |||||||||||||||||||
Outplacement Benefits | - | - | - | - | - | 8,300 | - | |||||||||||||||||||
Lump Sum for Defined Contribution Plans | - | - | - | - | - | - | 84,630 |
(1) | Retirement is generally defined as the executive’s attainment of age 55 with |
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COMPENSATION
(2) | Cash severance benefits are payable |
(3) |
(4) |
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EXECUTIVE COMPENSATION
(5) |
(6) | Continuation of health and welfare benefits upon an involuntary termination without cause are provided under the Executive Severance Plan |
(7) |
Continuation of financial planning benefits are provided under the terms of the Continuity |
(8) | For Mr. |
Compensation Committee Interlocks and Insider Participation
During 2013, none2016, Kerry J. Preete, William H. Powell, Farah M. Walters, and William A. Wulfsohn served on the Compensation Committee. None of our executive officers was a member of the Boardboard of Directorsdirectors or compensation committee of any other company where the relationship would be construed to constitute a committee interlock within the meaning of the rules of the SEC.SEC during 2016.
Policy on Related Person Transactions
Under our Guidelines for Ethical Business Conduct, we prohibit all employees, including our officers andnon-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 written “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, and which involve $50,000 or more. Further, the Audit Committee must review and approve any transaction that the Reviewing Team determines may be required to be disclosed pursuant to Item 404 ofRegulation S-K under the Exchange Act or any similar provision. In reviewing the related person transactions, the Reviewing Team and the Audit Committee consider the following factors: (1) whether the transaction is in conformity with our 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 obtained in arm’s length dealings with an unrelated third party; (4) the disclosure
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COMPENSATION
standards set forth in Item 404 ofRegulation S-K under the Exchange Act or any similar provision; and (5) whether the transaction could call into question the status of any Director or Director nominee as an independent director under the NYSE rules.
Risk Assessment of the Compensation Programs
As part of the Compensation Committee’s annual governance process, in December 2013,October 2016 we conducted a formal assessment of our compensation programs to ensure that they do not create risks that are reasonably likely to have a material adverse effect on PolyOne. With guidance from the Consultant, our Internal Audit and Human Resources groups completed the initial risk assessment of our compensation programs, including those that extend beyond the executive officers. The assessment was reviewed by our legal department and the Consultant, with these groups providing additional analysis and validation of the results. The results of the compensation risk assessment were presented to the Compensation Committee at its December 2013October 2016 meeting. The areas we considered in determining that our compensation programs do not pose a material risk to PolyOne included our:
Compensation Philosophy | Payout Curves | Clawback Policy | ||
Compensation Plan Design | Weightings of Incentive Plan Measures | Anti-Hedging/Anti-Pledging Policies | ||
Balanced Pay Mix | Compensation Plan Governance and Oversight | Stock Ownership Requirements | ||
Timing on Incentive Payouts | Selection of Performance Measures | Pay-for-Performance Validation |
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EXECUTIVE COMPENSATION
As a result of the assessment, the Compensation Committee concluded that our compensation structures are appropriate and no material risks were identified. Several process improvements have been made as a result of the assessment that will continue to ensure the appropriate level of oversight is in place for these programs.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth in this proxy statement with management. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors the inclusion of the Compensation Discussion and Analysis in this proxy statement and in PolyOne’s Annual Report onForm 10-K for the fiscal year ended December 31, 2013.2016.
The Compensation Committee
of the Board of Directors
Gordon D. Harnett, Chairperson
William H. Powell, Chairperson
Kerry J. Preete
Farah M. Walters
William A. Wulfsohn
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PROPOSAL 2: ADVISORY VOTE
PROPOSAL 2 — ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
As required under the Dodd-Frank Act and Section 14A of the Exchange Act, our Board of Directors is submitting a “Say on Pay” proposal for shareholder consideration. While the vote on Named Executive Officer compensation is non-binding and solely advisory in nature, our Board of Directors and the Compensation Committee will review the voting results. If there are a significant number of negative votes, we will seek to understand the concerns that influenced the vote and expect to address them in making future decisions about executive compensation programs.
Currently, advisory “Say on Pay” votes are scheduled to be held once every year. The next advisory vote on Named Executive Officer compensation is expected to occur at our 2015 Annual Meeting of Shareholders.
As described more fully in the “Compensation Discussion and Analysis” section of this proxy statement, the Compensation Committee of our Board of Directors has structured our executive compensation program to achieve the following key objectives:
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We believe you should vote “FOR” our Named Executive Officer compensation program because the compensation actually earned by our Named Executive Officers for our 2013 performance, as summarized below, was aligned with both our pay-for-performance objectives and our Company’s performance. PolyOne had another strong year in 2013, as described above under the “Compensation Discussion and Analysis” section of this proxy statement. Guided by our strong performance results for 2013 and in prior years, our key pay decisions and actions for 2013 included:
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PROPOSAL 2: ADVISORY VOTE
As described above, our recent key pay decisions have been linked to our performance in terms of key business metrics that drive long-term shareholder value. For example, for 2013, we achieved 194.9% of our Company adjusted operating income goal, 113.9% of our revenue goal and 191.4% of our consolidated working capital as a percentage of sales goal established under our Annual Plan. These results primarily drove the 2013 Annual Plan payouts described above. In addition, our time and performance based SARs help drive long-term shareholder value. These awards deliver value to our Named Executive Officers only to the extent our shareholders realize increased stock price value. Our stock price has increased 73% in the past year to $35.35 as of December 31, 2013 from $20.42 on December 31, 2012. Our Named Executive Officers have realized value for these awards as our shareholders have realized increased stock price value in their investment since those dates.
Based on these demonstrated links between pay and performance, as well as our more in-depth discussion in the “Compensation Discussion and Analysis” section of this proxy statement regarding how our CEO’s compensation has been commensurate with performance in recent years, we believe we have successfully implemented a pay-for-performance culture at PolyOne.
In 2013, we also maintained or implemented pay practices favored by a number of institutional shareholders and their advisors, including:
The Board of Directors believes our compensation programs demonstrate a clear link between 2013 pay and performance. The Board of Directors urges you to review carefully the “Compensation Discussion and Analysis” section of this Proxy Statement that describes our compensation philosophy and programs in greater detail and to approve the following resolution:
“RESOLVED, that the compensation paid to PolyOne’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”
Page 59
AUDIT
MISCELLANEOUS
PROPOSAL 3 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMMISCELLANEOUS PROVISIONS
The Audit Committee has appointed Ernst & Young LLP as our independent registered public accounting firm to audit our financial statements for the fiscal year ending December 31, 2014. 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 our best interests and the best interests of our shareholders. The affirmative vote of a majority of the shares voting on this proposal is required for ratification.
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, 2013.
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 on Form 10-Q, the issuance of comfort letters and consents, review of registration statements filed with the SEC and international statutory audits. Fees for audit services totaled $4,229,900 in 2013 and $2,694,800 in 2012. The full Audit Committee or the Chair of the Audit Committee pre-approved all audit services and related fee arrangements billed for 2013 in accordance with the Audit Committee Pre-Approval Policy for all Audit and Non-Audit Services and Related Fee Arrangements.
Audit-Related Fees. Audit-related services principally include employee benefit plan audits, attest services that are not required by statute or regulation and other international attest services not classified as audit fees. Fees for audit-related services totaled $177,600 in 2013 and $149,450 in 2012. The Audit Committee pre-approved all audit-related fee arrangements billed for 2013.
Tax Fees. Tax services include tax compliance, tax advice and tax planning. Fees for tax services totaled $802,000 in 2013 and $645,300 in 2012. The Audit Committee pre-approved all tax fee arrangements billed in 2013.
All Other Fees. No fees for other services were billed in 2013 and 2012.
Our Audit Committee Pre-Approval Policy for all Audit and Non-Audit Services and Related Fee Arrangements (the “Pre-Approval Policy”) requires our Audit Committee to pre-approve all audit and non-audit services performed by Ernst & Young LLP in order to assure that the provision of such services and related fee arrangements do not impair
Page 60
AUDIT
Ernst & Young LLP’s independence. Under the Pre-Approval Policy, the Audit Committee may delegate pre-approval authority to one or more of its members, and the member or members to whom the Audit Committee delegates such authority must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee has formally delegated this pre-approval authority to its Chair. Management has no authority to approve services performed by Ernst & Young LLP that have not been pre-approved 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.
Ernst & Young LLP will provide us a description of work scope and supporting back-up documentation regarding the specific 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 Audit Committee or the Audit Committee Chair by Ernst & Young LLP and our Chief Financial Officer, or Controller, and must include a statement as to whether, in each of their respective views, the request is consistent with the Commission’s rules on auditor independence.
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 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 effectiveness of the company’s internal control 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. The Committee also reviewed and discussed with management and the independent auditors management’s report on internal control over financial reporting, including the significance and status of control deficiencies identified by management and the results of remediation efforts undertaken, to determine the effectiveness of internal control over financial reporting at December 31, 2013.
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 control over financial reporting at December 31, 2013, including the basis for their conclusions. The Audit Committee reviewed and discussed with the independent registered public accounting firm all communications required by generally accepted auditing standards, including the matters required to be discussed by the statement on Auditing Standards No. 16, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board. In addition, Ernst & Young LLP has provided the Committee with the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the Committee concerning independence and the Committee has discussed with Ernst & Young LLP their firm’s independence from management and PolyOne. The Committee has 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 and evaluated their 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 control over financial reporting, and the overall quality of PolyOne’s financial reporting. The Audit Committee met nine times during 2013.
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, 2013, for filing with the Securities and Exchange Commission.
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AUDIT
The Committee has re-appointed Ernst & Young LLP as independent auditors for the year 2014.
All members of the Audit Committee concur in this report.
The Audit Committee of
the Board of Directors
Richard H. Fearon, Chairperson
Carol A. Cartwright
Gordon D. Harnett
Sandra B. Lin
Richard A. Lorraine
February 11, 2014
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GENERAL
Voting at the Meeting
Shareholders of record at the close of business on March 18, 201414, 2017 are entitled to vote at the meeting. On that date, a total of 94,117,58181,755,570 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 brokernon-votes are tabulated in determining the votes present at a meeting for purposes of determining a quorum. Shareholders will not be entitled to dissenter’s rights with respect to any matter to be considered at the Annual Meeting of Shareholders.Meeting.
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 brokernon-vote has the same effect as a vote against a Director nominee, as each abstention or brokernon-vote would be one less vote in favor of a Director nominee. Your broker or other nominee willnot be able to vote your shares with respect to the election of Directors if you have not provided directions to your broker. We strongly encourage you to submit your proxy card and exercise your right to vote as a shareholder. Holders of common shares have no cumulative voting rights. If any of the nominees listed on pages 3 through 6in the “Proposal 1 – Election of Board of Directors” section of this proxy statement 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.Board. However, we have no reason to believe that this will occur.
Because the vote to approve Named Executive Officer compensation isand the frequency of future votes on executive compensation are advisory, there is technically no minimum vote requirement for the proposal.these proposals. An abstention or brokernon-vote will have no effect on the proposalthese proposals as the abstention or brokernon-vote will not be counted in determining the number of votes cast.
The affirmative vote of holders of at least a majority of the shares cast, in person or by proxy, is necessary for approval of the PolyOne Corporation 2017 Equity and Incentive Compensation Plan and the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm. Because the proposal to ratify the appointment of Ernst & Young LLP is considered “routine,” your broker or other nominee will be able to vote your shares with respect to this proposal without your instructions. An abstention will have no effect on this proposalthese proposals as the abstention 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.
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GENERAL
Shareholder Proposals
Any shareholder who wishes to submit a proposal to be considered for inclusion in next year’s Proxy Statement should send the proposal to us, addressed to the Secretary, so that it is received on or before December 4, 2014.1, 2017. We suggest that all proposals be sent by certified mail, return receipt requested.
Additionally, a shareholder may submit a proposal for consideration at the 20152017 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 our Regulations. In general, Regulation 8(c) provides that, to be timely, a shareholder’s notice must be delivered to our 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.Annual Meeting. If the date of the 20152017 Annual Meeting of Shareholders is delayed by more than 60 calendar days after the anniversary of the 20142017 Annual Meeting, of Shareholders, then a shareholder’s notice must be delivered to our principal executive offices not later than the close of business on the later of the 90th day prior to the 20152017 Annual Meeting of Shareholders or the 10th calendar day following the day on which public announcement of the date of the 20152017 Annual Meeting of Shareholders is first made.
Our proxy materials for the 20142017 Annual Meeting of Shareholders will be mailed on or about April 3, 2014.March 31, 2017. Sixty days prior to the first anniversary of this date will be February 2, 2015,January 30, 2018, and 90 days prior to the first anniversary of this date will be January 3, 2015.
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MISCELLANEOUS
December 31, 2017. Our proxies for the 20142018 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 to be properly requested by a shareholder to be brought before the 20142018 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 Solicitation
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, our officers and regular employees may request proxies by telephone or in person. We have retained Morrow & Co.,Sodali LLC, 470 West Avenue, Stamford, CT 06902, to assist in the solicitation for an estimated fee of $7,500 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 our Annual Report to Shareholders, including consolidated financial statements for the year ended December 31, 2013,2016, to shareholders of record with this proxy statement.
We will furnish without charge to each person from whom a proxy is being solicited, upon written request of any such person, a copy of the Annual Report onForm 10-K of the Company for the fiscal year ending December 31, 2013,2016, as filed with the SEC, including the financial statements and schedules thereto. Requests for copies of such Annual Report onForm 10-K or for information on how to obtain directions to be able to attend the Annual Meeting of Shareholders and vote in person should be directed to: PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012, Attention: Secretary.
For the Board of Directors
PolyOne Corporation LISA K. KUNKLE Senior Vice President, General Counsel and Secretary March 31, 2017
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Reconciliation ofNon-GAAP Financial Measures (Unaudited)
(In millions, except per share data)
Year Ended December 31, 2013 | Year Ended December 31, 2012 | |||||||||||||||||
$ | EPS | $ | EPS | |||||||||||||||
Reconciliation to Consolidated Statements of Income | ||||||||||||||||||
Net income from continuing operations attributable to PolyOne shareholders | $ | 94.0 | $ | 0.97 | $ | 53.3 | $ | 0.59 | ||||||||||
Special items, after tax (a) | 30.4 | 0.32 | 35.7 | 0.40 | ||||||||||||||
Tax adjustments (b) | 2.2 | 0.02 | 0.5 | 0.01 | ||||||||||||||
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Adjusted net income / EPS (c) | $ | 126.6 | $ | 1.31 | $ | 89.5 | $ | 1.00 | ||||||||||
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Senior management uses comparisons of Adjusted Net Income from Continuing Operations attributable to PolyOne shareholders and diluted adjusted Earnings Per Share (“EPS”) from continuing operations attributable to PolyOne shareholders, excluding special items, to assess performance and facilitate comparability of results. Below is a reconciliation of thesenon-GAAP (as defined below) financial measures to their most directly comparable measures calculated and presented in accordance with United States Generally Accepted Accounting Principles (GAAP).
Year Ended | Year Ended | |||||||||||||||
December 31, 2016 | December 31, 2015 | |||||||||||||||
Reconciliation to Condensed Consolidated Statements of Income | $ | EPS | $ | EPS | ||||||||||||
Net income attributable to PolyOne shareholders | $ | 165.2 | $ | 1.95 | $ | 144.6 | $ | 1.63 | ||||||||
Special items, after tax(1), (2) | 14.8 | 0.18 | 28.9 | 0.33 | ||||||||||||
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Adjusted net income / EPS – excluding special items | $ | 180 | $ | 2.13 | $ | 173.5 | $ | 1.96 | ||||||||
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Year Ended | Year Ended | |||||||||||||||
December 31, 2014 | December 31, 2013 | |||||||||||||||
Reconciliation to Condensed Consolidated Statements of Income | $ | EPS | $ | EPS | ||||||||||||
Net income from continuing operations attributable to PolyOne shareholders | $ | 78.0 | $ | 0.83 | $ | 94.0 | $ | 0.97 | ||||||||
Special items, after tax(1), (2) |
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Adjusted net income / EPS – excluding special items | $ | 168.5 | $ | 1.80 | $ | 126.6 | $ | 1.31 | ||||||||
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Year Ended | ||||||||
December 31, 2012 | ||||||||
Reconciliation to Condensed Consolidated Statements of Income | $ | EPS | ||||||
Net income from continuing operations attributable to PolyOne shareholders | $ | 53.3 | $ | 0.59 | ||||
Special items, after tax(1), (2) | 36.2 | 0.41 | ||||||
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Adjusted net income / EPS – excluding special items
| $ | 89.5 | $ | 1.00 | ||||
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| A-1 |
Senior management uses operating income before special items to assess performance and allocate resources because senior management believes that this measure is useful in understanding current profitability levels and how it may serve as a base for future performance. In addition, operating income before the effect of special items is a component of PolyOne annual and long-term employee incentive plans and is used in debt covenant computations. Below is a reconciliation of thisnon-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with GAAP.
Year Ended December 31, | ||||||||
Reconciliation to Consolidated Statements of Income | 2016 | 2015 | ||||||
Operating income - GAAP | 281.9 | 250.9 | ||||||
Special items in operating income(1) | 35.3 | 71.3 | ||||||
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Operating income adjusted | $ | 317.2 | $ | 322.2 | ||||
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Liquidity is calculated as follows:
As of December 31, | ||||
2016 | ||||
Cash and cash equivalents | $ | 226.7 | ||
Revolving credit availability | 386.2 | |||
Liquidity | $ | 612.9 | ||
(1) | Special items are anon-GAAP financial |
Tax adjustments include the net tax |
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Reconciliation to Consolidated Operating Income | ||||||||
Adjusted operating income | $ | 261.5 | $ | 191.4 | ||||
Special items in operating income | (30.0) | (53.9) | ||||||
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Operating income - GAAP | $ | 231.5 | $ | 137.5 | ||||
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Adjusted EPS | 2010Y | 2011Y | 2012Y | 2013Y | ||||||||||||
Net income from continuing operations attributable to PolyOne common shareholders | $ | 152.5 | $ | 153.4 | $ | 53.3 | $ | 94.0 | ||||||||
SunBelt equity earnings, after tax | (14.7 | ) | (3.7 | ) | - | - | ||||||||||
Special items, after tax | 15.8 | (30.5 | ) | 35.7 | 30.4 | |||||||||||
Tax adjustments | (88.3 | ) | (42.3 | ) | 0.5 | 2.2 | ||||||||||
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Adjusted net income | $ | 65.3 | $ | 76.9 | $ | 89.5 | $ | 126.6 | ||||||||
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Diluted shares | 96.0 | 94.3 | 89.8 | 96.5 | ||||||||||||
Adjusted EPS | $ | 0.68 | $ | 0.82 | $ | 1.00 | $ | 1.31 |
Senior management uses comparisons
| A-2 |
POLYONE CORPORATION
2017 EQUITY AND INCENTIVE COMPENSATION PLAN
1. Purpose. The purpose of adjusted operating income, adjusted net incomethis Plan is to attract and retainnon-employee Directors, officers and other employees of the Company and its Subsidiaries and to provide to such persons incentives and rewards for service or performance.
2. Definitions. As used in this Plan:
(a) “Appreciation Right” means a right granted pursuant toSection 5 orSection 9 of this Plan, and will include both Tandem Appreciation Rights and Free-Standing Appreciation Rights.
(b) “Base Price” means the price to be used as the basis for determining the Spread upon the exercise of a Free-Standing Appreciation Right or a Tandem Appreciation Right.
(c) “Board” means the Board of Directors of the Company.
(d) “Cash Incentive Award” means a cash award granted pursuant toSection 8 of this Plan.
(e) “Change of Control” means, except as otherwise provided for in an Evidence of Award, the occurrence of any of the following events:
(i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule13d-3 promulgated under the Exchange Act) of voting securities of the Company where such acquisition causes such Person to own 25% 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 (i), the following acquisitions shall not be deemed to result in a Change of Control: (A) any acquisition directly from continuing operations attributablethe Company that is approved by the Incumbent Board (as defined in subsection (ii) below), (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to PolyOnea transaction that complies with clauses (A), (B) and (C) of subsection (iii) below;provided,further, that if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds 25% as a result of a transaction described in clause (A) or (B) 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 25% or more of the Outstanding Company Voting Securities; andprovided,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 Rule13d-3 promulgated under the Exchange Act) of 25% 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 Rule13d-3 promulgated under the Exchange Act) less than 25% of the Outstanding Company Voting Securities, then no Change of Control shall have occurred as a result of such Person’s acquisition;
(ii) individuals who, as of May 11, 2017, constitute the Board (the “Incumbent Board” as modified by this subsection (ii)) cease for any reason to constitute at least a majority of the Board;provided,however, that any individual becoming a director subsequent to May 11, 2017 whose election, or nomination for election by the Company’s shareholders, and diluted earnings per share (EPS) from continuing operations attributable to PolyOne shareholders excluding special items to assess performance and facilitate comparabilitywas approved by a vote of results. Aboveat least a majority of the directors then comprising the Incumbent Board (either by specific vote or by approval of the proxy statement of the Company in which such person is named as a reconciliation of these non-GAAP financial measures to their most directly comparable measures calculated and presented in accordance with U.S. GAAP.nominee for director,
| B-1 |
Page A-1
without objection to such nomination) 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;
(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 or other transaction (“Business Combination”) excluding, however, such a Business Combination pursuant to which (A) 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 entity resulting from such Business Combination (including, without limitation, an entity 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), (B) no Person (excluding any employee benefit plan (or related trust) of the Company, the Company or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the entity resulting from such Business Combination and (C) 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 pursuant to a Business Combination that complies with clauses (A), (B) and (C) of subsection (iii) above.
(f) “Code” means the Internal Revenue Code of 1986, as amended from time to time.
(g) “Common Shares” means the shares of common stock, par value $0.01 per share, of the Company or any security into which such Common Shares may be changed by reason of any transaction or event of the type referred to inSection 12 of this Plan.
(h) “Company” means PolyOne Corporation, an Ohio corporation, and its successors.
(i) “Compensation Committee” means the Compensation Committee of the Board (or its successor(s)), or any other committee of the Board designated by the Board to administer this Plan pursuant toSection 13 of this Plan, and to the extent of any delegation by the Compensation Committee to a subcommittee pursuant toSection 13 of this Plan, such subcommittee.
(j) “Date of Grant” means the date specified by the Compensation Committee on which a grant of Option Rights, Appreciation Rights, Performance Shares, Performance Units, Cash Incentive Awards, or other awards contemplated bySection 10 of this Plan, or a grant or sale of Restricted Stock, Restricted Stock Units, or other awards contemplated bySection 10 of this Plan, will become effective (which date will not be earlier than the date on which the Compensation Committee takes action with respect thereto).
(k) “Director” means a member of the Board.
(l) “Effective Date” means the date that this Plan is approved by the shareholders of the Company.
(m) “Evidence of Award” means an agreement, certificate, resolution or other type or form of writing or other evidence approved by the Compensation Committee that sets forth the terms and
| B-2 |
conditions of one or more awards granted under this Plan. An Evidence of Award may be in an electronic medium, may be limited to notation on the books and records of the Company and, unless otherwise determined by the Compensation Committee, need not be signed by a representative of the Company or a Participant.
(n) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.
(o) “Free-Standing Appreciation Right” means an Appreciation Right granted pursuant toSection 5 orSection 9 of this Plan that is not granted in tandem with an Option Right.
(p) “Incentive Stock Options” means Option Rights that are intended to qualify as “incentive stock options” under Section 422 of the Code or any successor provision.
(q) “Management Objectives” means the measurable performance objective or objectives established pursuant to this Plan for Participants who have received grants of Performance Shares, Performance Units or Cash Incentive Awards or, when so determined by the Compensation Committee, Option Rights, Appreciation Rights, Restricted Stock, Restricted Stock Units, dividend equivalents or other awards pursuant to this Plan. Management Objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or of one or more of the subsidiaries, divisions, departments, regions, functions or other organizational units within the Company or its Subsidiaries. The Management Objectives may be made relative to the performance of other companies or subsidiaries, divisions, departments, regions, functions or other organizational units within such other companies, and may be made relative to an index or one or more of the performance objectives themselves. The Compensation Committee may grant awards subject to Management Objectives that are either Qualified Performance-Based Awards or are not Qualified Performance-Based Awards. The Management Objectives applicable to any Qualified Performance-Based Award will be based on one or more, or a combination, of the following metrics (including relative or growth achievement regarding such metrics):
(i) Profits (e.g., operating income, EBIT, EBT, net income, earnings per share, residual or economic earnings, economic profit — these profitability metrics could be measured before certain specified special items and/or subject to GAAP definition);
(ii) Cash Flow (e.g., EBITDA, free cash flow, free cash flow with or without specific capital expenditure target or range, including or excluding divestments and/or acquisitions, total cash flow, cash flow in excess of cost of capital or residual cash flow or cash flow return on investment);
(iii) Returns (e.g., Profits or Cash Flow returns on: assets, invested capital, net capital employed, sales, and equity);
(iv) Working Capital (e.g., working capital divided by sales, days’ sales outstanding, days’ sales inventory, and days’ sales in payables);
(v) Profit Margins (e.g., Profits divided by revenues, gross margins and material margins divided by revenues, and material margin divided by sales pounds);
(vi) Liquidity Measures (e.g.,debt-to-capital,debt-to-EBITDA, total debt ratio);
(vii) Sales Growth, Gross Margin Growth, Cost Initiative and Stock Price Metrics (e.g., revenues, revenue growth, revenue growth by targeted country, region or end market, gross margin and gross margin growth, material margin and material margin growth, stock price appreciation, total return to shareholders, sales and administrative costs divided by sales, and sales and administrative costs divided by profits); and
| B-3 |
(viii) Strategic Initiative Key Deliverable Metricsconsisting of one or more of the following: product development, strategic partnering, research and development, vitality index, market penetration, geographic business expansion goals, cost targets, customer satisfaction, employee satisfaction, management of employment practices (including succession planning and talent development) and employee benefits, supervision of litigation and information technology, and goals or synergies relating to acquisitions or divestitures of subsidiaries, affiliates and joint ventures.
In the case of a Qualified Performance-Based Award, each Management Objective will be objectively determinable to the extent required under Section 162(m) of the Code, and, unless otherwise determined by the Committee and to the extent consistent with Code Section 162(m), will exclude the effects of certain designated items identified at the time of grant. Management Objectives that are financial metrics may be determined in accordance with United States Generally Accepted Accounting Principles (“GAAP”) or financial metrics that are based on, or able to be derived from GAAP, and may be adjusted when established (or to the extent permitted under Section 162(m) of the Code, at any time thereafter) to include or exclude any items otherwise includable or excludable under GAAP. If the Compensation Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Management Objectives unsuitable, the Compensation Committee may in its discretion modify such Management Objectives or the acceptable levels of achievement, in whole or in part, as the Compensation Committee deems appropriate and equitable, except in the case of a Qualified Performance-Based Award (other than in connection with a Participant’s death or disability or a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
(r) “Market Value per Share” means as of any particular date the closing sale price of the Common Shares as reported on The New York Stock Exchange or, if not listed on such exchange, on any other national securities exchange on which the Common Shares are listed. If the Common Shares are not traded as of any given date, the Market Value per Share means the closing price for the Common Shares on the principal exchange on which the Common Shares are traded for the immediately preceding date on which the Common Shares were traded. If there is no regular public trading market for the Common Shares, the Market Value per Share of the Common Shares shall be the fair market value of the Common Shares as determined in good faith by the Compensation Committee. The Compensation Committee is authorized to adopt another fair market value pricing method provided such method is stated in the applicable Evidence of Award and is in compliance with the fair market value pricing rules set forth in Section 409A of the Code.
(s) “Optionee” means the optionee named in an Evidence of Award evidencing an outstanding Option Right.
(t) “Option Price” means the purchase price payable on exercise of an Option Right.
(u) “Option Right” means the right to purchase Common Shares upon exercise of an option granted pursuant toSection 4 orSection 9 of this Plan.
(v) “Participant” means a person who is selected by the Compensation Committee to receive benefits under this Plan and who is at the time (i) an officer or other key employee of the Company or any Subsidiary, including a person who has agreed to commence serving in such capacity within 90 days of the Date of Grant, (ii) a person who provides services to the Company or any Subsidiary that are equivalent to those typically provided by an employee (provided that such person satisfies the FormS-8 definition of an “employee”), or (iii) anon-employee Director.
(w) “Performance Period” means, in respect of a Cash Incentive Award, Performance Share or Performance Unit, a period of time established pursuant toSection 8 of this Plan within which the Management Objectives relating to such Cash Incentive Award, Performance Share or Performance Unit are to be achieved.
| B-4 |
(x) “Performance Share” means a bookkeeping entry that records the equivalent of one Common Share awarded pursuant toSection 8 of this Plan.
(y) “Performance Unit” means a bookkeeping entry awarded pursuant toSection 8 of this Plan that records a unit equivalent to $1.00 or such other value as is determined by the Compensation Committee.
(z) “Plan” means this PolyOne Corporation 2017 Equity and Incentive Compensation Plan, as may be amended or amended and restated from time to time.
(aa) “Predecessor Plan” means the PolyOne Corporation 2010 Equity and Performance Incentive Plan, as may be (or may have been) amended or amended and restated from time to time.
(bb) “Qualified Performance-Based Award” means any Cash Incentive Award or award of Performance Shares, Performance Units, Restricted Stock, Restricted Stock Units, or other awards contemplated underSection 10 of this Plan, or portion of such award, that is intended to satisfy the requirements for “qualified performance-based compensation” under Section 162(m) of the Code.
(cc) “Restricted Stock” means Common Shares granted or sold pursuant toSection 6 orSection 9 of this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfers has expired.
(dd) “Restricted Stock Unit” means an award made pursuant toSection 7 orSection 9 of this Plan of the right to receive Common Shares, cash or a combination thereof at the end of a specified period.
(ee) “Restriction Period” means the period of time during which Restricted Stock Units are subject to restrictions, as provided inSection 7 orSection 9 of this Plan.
(ff) “Spread” means the excess of the Market Value per Share on the date when an Appreciation Right is exercised over the Option Price or Base Price provided for in the related Option Right or Free-Standing Appreciation Right, respectively.
(gg) “Subsidiary” means a corporation, company or other entity (i) more than 50 percent of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture, limited liability company, unincorporated association or other similar entity), but more than 50 percent of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company; provided, however, that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, “Subsidiary” means any corporation in which the Company at the time owns or controls, directly or indirectly, more than 50 percent of the total combined Voting Power represented by all classes of stock issued by such corporation.
(hh) “Tandem Appreciation Right” means an Appreciation Right granted pursuant toSection 5 orSection 9 of this Plan that is granted in tandem with an Option Right.
(ii) “Voting Power” means, at any time, the combined voting power of the then-outstanding securities entitled to vote generally in the election of Directors in the case of the Company or members of the board of directors or similar body in the case of another entity.
| B-5 |
3. Shares Available Under this Plan.
(a) | Maximum Shares Available Under Plan. |
(i) | Subject to adjustment as provided inSection 12 of this Plan and the share counting rules set forth inSection 3(b) of this Plan, the number of Common Shares available under this Plan for (A) Option Rights or Appreciation Rights, (B) Restricted Stock, (C) Restricted Stock Units, (D) Performance Shares or Performance Units, (E) awards tonon-employee Directors contemplated bySection 9 of this Plan, (F) awards contemplated bySection 10 of this Plan, or (G) dividend equivalents paid with respect to awards made under this Plan, will not exceed in the aggregate (x) 2,500,000 Common Shares minus (y) as of the Effective Date, one Common Share for every one Common Share subject to an award granted under the Predecessor Plan between March 1, 2017 and the Effective Date. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing. |
(ii) | The aggregate number of Common Shares available underSection 3(a)(i) of this Plan will be reduced by one Common Share for every one Common Share subject to an award granted under this Plan. |
(b) | Share Counting Rules. |
(i) | Except as provided inSection 22 of this Plan, if any award granted under this Plan is cancelled or forfeited, expires or is settled for cash (in whole or in part), or is unearned, the Common Shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available underSection 3(a)(i) above. |
(ii) | If, after March 1, 2017, any Common Shares subject to an award granted under the Predecessor Plan are forfeited, or an award granted under the Predecessor Plan is cancelled or forfeited, expires or is settled for cash (in whole or in part), or is unearned, the Common Shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be available for awards under this Plan. |
(iii) | Notwithstanding anything to the contrary contained in this Plan: (A) Common Shares withheld by the Company, tendered or otherwise used in payment of the Option Price of an Option Right will not be added (or added back, as applicable) to the aggregate number of Common Shares available underSection 3(a)(i) of this Plan; (B) Common Shares withheld by the Company, tendered or otherwise used to satisfy a tax withholding obligation will not be added (or added back, as applicable) to the aggregate number of Common Shares available underSection 3(a)(i) of this Plan; (C) Common Shares subject to an Appreciation Right that are not actually issued in connection with the settlement of such Appreciation Right on the exercise thereof, will not be added back to the aggregate number of Common Shares available underSection 3(a)(i) of this Plan; and (D) Common Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Option Rights will not be added to the aggregate number of Common Shares available underSection 3(a)(i) of this Plan. |
(iv) | If, under this Plan, a Participant has elected to give up the right to receive compensation in exchange for Common Shares based on fair market value, such Common Shares will not count against the aggregate limit underSection 3(a)(i) of this Plan. |
| B-6 |
(c) Limit on Incentive Stock Options; Full-Value Award Limit. Notwithstanding anything to the contrary contained in thisSection 3 or elsewhere in this Plan, and subject to adjustment as provided inSection 12 of this Plan: (i) the aggregate number of Common Shares actually issued or transferred by the Company upon the exercise of Incentive Stock Options will not exceed 2,500,000 Common Shares; and (ii) the number of Common Shares subject to awards of Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units, awards tonon-employee Directors contemplated bySection 9 of this Plan (other than Option Rights or Appreciation Rights), and other awards underSection 10 of this Plan (after taking into account any forfeitures and cancellations) will not, during the life of this Plan, in the aggregate exceed 1,000,000 Common Shares.
(d) Individual Participant Limits. Notwithstanding anything to the contrary contained in thisSection 3 or elsewhere in this Plan, and subject to adjustment as provided inSection 12 of this Plan:
(i) | In no event will any Participant in any calendar year be granted Option Rights and/or Appreciation Rights, in the aggregate, for more than 500,000 Common Shares; provided, however, that with respect to a Participant’s first calendar year of service with the Company or a Subsidiary, the amount set forth in thisSection 3(d)(i) is multiplied by two. |
(ii) | In no event will any Participant in any calendar year be granted Qualified Performance-Based Awards of Restricted Stock, Restricted Stock Units, Performance Shares and/or other awards underSection 10 of this Plan, in the aggregate, for more than 400,000 Common Shares; provided, however, that with respect to a Participant’s first calendar year of service with the Company or a Subsidiary, the amount set forth in thisSection 3(d)(ii) is multiplied by two. |
(iii) | In no event will any Participant in any calendar year receive Qualified Performance-Based Awards of Performance Units and/or other awards payable in cash underSection 10 of this Plan having an aggregate maximum value as of their respective Dates of Grant in excess of $4,000,000; provided, however, that with respect to a Participant’s first calendar year of service with the Company or a Subsidiary, the amount set forth in thisSection 3(d)(iii) is multiplied by two. |
(iv) | In no event will any Participant in any calendar year receive Qualified Performance-Based Awards that are Cash Incentive Awards having an aggregate maximum value in excess of $4,000,000; provided, however, that with respect to a Participant’s first calendar year of service with the Company or a Subsidiary, the amount set forth in thisSection 3(d)(iv) is multiplied by two. |
(v) | In no event will anynon-employee Director in any calendar year be granted awards under this Plan having an aggregate maximum value at the Date of Grant (calculating the value of any such awards based on the grant date fair value for financial reporting purposes), taken together with any cash fees payable to suchnon-employee Director for such calendar year, in excess of $600,000. |
(e) Notwithstanding anything in this Plan to the contrary (except for the discretionary acceleration provisions of this Plan), up to 5% of the aggregate number of Common Shares available for awards underSection 3(a)(i) of this Plan, as may be adjusted underSection 12 of this Plan, may be used for awards granted underSection 4 throughSection 8 andSection 10 of this Plan that do not at grant comply with the applicableone-year minimum vesting or performance period requirements set forth in such sections of this Plan.
| B-7 |
4. Option Rights. The Compensation Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting to Participants of Option Rights. Each such grant may utilize any or all of the authorizations, and will be subject to all of the requirements contained in the following provisions:
(a) Each grant will specify the number of Common Shares to which it pertains subject to the limitations set forth inSection 3 of this Plan.
(b) Each grant will specify an Option Price per Common Share, which (except with respect to awards underSection 22 of this Plan) may not be less than the Market Value per Share on the Date of Grant.
(c) Each grant will specify whether the Option Price will be payable (i) in cash or by check acceptable to the Company or by wire transfer of immediately available funds, (ii) by the actual or constructive transfer to the Company of Common Shares owned by the Optionee (or other consideration authorized pursuant toSection 4(d)) having a value at the time of exercise equal to the total Option Price, (iii) subject to any conditions or limitations established by the Compensation Committee, by the Company’s withholding of Common Shares otherwise issuable upon exercise of an Option Right pursuant to a “net exercise” arrangement (it being understood that, solely for purposes of determining the number of treasury shares held by the Company, the Common Shares so withheld will not be treated as issued and acquired by the Company upon such exercise), (iv) by a combination of such methods of payment, or (v) by such other methods as may be approved by the Compensation Committee.
(d) To the extent permitted by law, any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker on a date satisfactory to the Company of some or all of the Common Shares to which such exercise relates.
(e) Successive grants may be made to the same Participant whether or not any Option Rights previously granted to such Participant remain unexercised.
(f) Each grant will specify the period or periods of continuous service by the Optionee with the Company or any Subsidiary that is necessary before the Option Rights or installments thereof will become exercisable;provided,however, that, except as otherwise described in this subsection, (i) Option Rights that become exercisable based solely on the passage of time may not become exercisable sooner than after one year and (ii) Option Rights that become exercisable based on the achievement of Management Objectives may not become exercisable sooner than after aone-year performance period. Option Rights may provide for continued vesting or the earlier exercise of such Option Rights, including in the event of the retirement, death or disability of a Participant, or a Change of Control.
(g) Any grant of Option Rights may specify Management Objectives that must be achieved as a condition to the exercise of such rights.
(h) Option Rights granted under this Plan may be (i) options, including, without limitation, Incentive Stock Options, that are intended to qualify under particular provisions of the Code, (ii) options that are not intended so to qualify, or (iii) combinations of the foregoing. Incentive Stock Options may only be granted to Participants who meet the definition of “employees” under Section 3401(c) of the Code.
(i) The exercise of an Option Right will result in the cancellation on a share-for-share basis of any Tandem Appreciation Right authorized underSection 5 of this Plan.
(j) No Option Right will be exercisable more than 10 years from the Date of Grant.
(k) The Compensation Committee may substitute, without receiving Participant permission, Appreciation Rights payable only in Common Shares (or Appreciation Rights payable in
| B-8 |
Common Shares or cash, or a combination of both, at the Compensation Committee’s discretion) for outstanding Options;provided, however, that the terms of the substituted Appreciation Rights are substantially the same as the terms for the Options and the difference between the Market Value Per Share of the underlying Common Shares and the Base Price of the Appreciation Rights is equivalent to the difference between the Market Value Per Share of the underlying Common Shares and the Option Price of the Options. If, in the opinion of the Company’s auditors, this provision creates adverse accounting consequences for the Company, it shall be considered null and void.
(l) Option Rights granted under this Plan may not provide for any dividends or dividend equivalents thereon.
(m) Each grant of Option Rights will be evidenced by an Evidence of Award. Each Evidence of Award shall be subject to this Plan and shall contain such terms and provisions, consistent with this Plan, as the Compensation Committee may approve.
5. Appreciation Rights.
(a) The Compensation Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting (i) to any Optionee, of Tandem Appreciation Rights in respect of Option Rights granted hereunder, and (ii) to any Participant, of Free-Standing Appreciation Rights. A Tandem Appreciation Right will be a right of the Optionee, exercisable by surrender of the related Option Right, to receive from the Company an amount determined by the Compensation Committee, which will be expressed as a percentage of the Spread (not exceeding 100 percent) at the time of exercise. Tandem Appreciation Rights may be granted at any time prior to the exercise or termination of the related Option Rights;provided, however, that a Tandem Appreciation Right awarded in relation to an Incentive Stock Option must be granted concurrently with such Incentive Stock Option. A Free-Standing Appreciation Right will be a right of the Participant to receive from the Company an amount determined by the Compensation Committee, which will be expressed as a percentage of the Spread (not exceeding 100 percent) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(i) Any grant may specify that the amount payable on exercise of an Appreciation Right will be paid by the Company in cash, in Common Shares or in any combination thereof.
(ii) Any grant may specify that the amount payable on exercise of an Appreciation Right may not exceed a maximum specified by the Compensation Committee on the Date of Grant.
(iii) Any grant may specify waiting periods before exercise and permissible exercise dates or periods;provided,however, that, except as otherwise described in this subsection, (A) Appreciation Rights that become exercisable based solely on the passage of time may not become exercisable sooner than after one year and (B) Appreciation Rights that become exercisable based on the achievement of Management Objectives may not become exercisable sooner than after aone-year performance period. Appreciation Rights may provide for continued vesting or the earlier exercise of such Appreciation Rights, including in the event of retirement, death or disability of a Participant, or a Change of Control.
(iv) Any grant of Appreciation Rights may specify Management Objectives that must be achieved as a condition of the exercise of such Appreciation Rights.
(v) Each grant of Appreciation Rights will be evidenced by an Evidence of Award, which Evidence of Award will describe such Appreciation Rights, identify the related Option Rights (if applicable), and contain such other terms and provisions, consistent with this Plan, as the Compensation Committee may approve.
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(c) Any grant of Tandem Appreciation Rights will provide that such Tandem Appreciation Rights may be exercised only at a time when the related Option Right is also exercisable and at a time when the Spread is positive, and by surrender of the related Option Right for cancellation. Successive grants of a Tandem Appreciation Right may be made to the same Participant regardless of whether any Tandem Appreciation Rights previously granted to the Participant remain unexercised. For the avoidance of doubt, the Option Price of an Option Right to which a Tandem Appreciation Right relates (except with respect to awards underSection 22 of this Plan) will be equal to or greater than the Market Value per Share on the Date of Grant of such related Option Right.
(d) Appreciation Rights granted under this Plan may not provide for any dividends or dividend equivalents thereon.
(e) Regarding Free-Standing Appreciation Rights only:
(i) Each grant will specify in respect of each Free-Standing Appreciation Right a Base Price, which (except with respect to awards underSection 22 of this Plan) will be equal to or greater than the Market Value per Share on the Date of Grant;
(ii) Successive grants may be made to the same Participant regardless of whether any Free-Standing Appreciation Rights previously granted to the Participant remain unexercised; and
(iii) No Free-Standing Appreciation Right granted under this Plan may be exercised more than 10 years from the Date of Grant.
6. Restricted Stock. The Compensation Committee may, from time to time and upon such terms and conditions as it may determine, authorize the grant or sale of Restricted Stock to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each such grant or sale will constitute an immediate transfer of the ownership of Common Shares to the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and other ownership rights, but subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share on the Date of Grant.
(c) Each such grant or sale will provide that the Restricted Stock covered by such grant or sale will be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period to be determined by the Compensation Committee on the Date of Grant or until achievement of Management Objectives referred to in subparagraph (e) below. If the elimination of restrictions is based only on the passage of time rather than the achievement of Management Objectives, the period of time will be no shorter than one year as determined by the Compensation Committee on the Date of Grant.
(d) Each such grant or sale will provide that during or after the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Stock will be prohibited or restricted in the manner and to the extent prescribed by the Compensation Committee on the Date of Grant (which restrictions may include, without limitation, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture in the hands of any transferee).
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(e) Any grant of Restricted Stock may specify Management Objectives that, if achieved, will result in termination or early termination of the restrictions applicable to such Restricted Stock;provided,however, that, notwithstanding subparagraph (c) above, restrictions relating to Restricted Stock that vests upon the achievement of Management Objectives may not terminate sooner than after aone-year performance period. Each grant may specify in respect of such Management Objectives a minimum acceptable level of achievement and may set forth a formula for determining the number of shares of Restricted Stock on which restrictions will terminate if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified Management Objectives.
(f) Notwithstanding anything to the contrary contained in this Plan (including minimum vesting requirements), Restricted Stock may provide for continued vesting or the earlier termination of restrictions on such Restricted Stock, including in the event of the retirement, death or disability of a Participant, or a Change of Control;provided,however, that no award of Restricted Stock intended to be a Qualified Performance-Based Award will provide for such early termination of restrictions (other than in connection with the death or disability of the Participant or a Change of Control) to the extent such provisions would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
(g) Any such grant or sale of Restricted Stock will require that any and all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and/or reinvested in additional shares of Restricted Stock, which will be subject to the same restrictions as the underlying award. For the avoidance of doubt, any such dividends or other distributions on Restricted Stock shall be deferred until and paid contingent upon the vesting of such Restricted Stock.
(h) Each grant or sale of Restricted Stock will be evidenced by an Evidence of Award and will contain such terms and provisions, consistent with this Plan, as the Compensation Committee may approve. Unless otherwise directed by the Compensation Committee, (i) all certificates representing shares of Restricted Stock will be held in custody by the Company until all restrictions thereon will have lapsed, together with a stock power or powers executed by the Participant in whose name such certificates are registered, endorsed in blank and covering such shares, or (ii) all shares of Restricted Stock will be held at the Company’s transfer agent in book entry form with appropriate restrictions relating to the transfer of such shares of Restricted Stock.
7. Restricted Stock Units. The Compensation Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting or sale of Restricted Stock Units to Participants. Each such grant or sale may utilize any or all of the authorizations, and will be subject to all of the requirements contained in the following provisions:
(a) Each such grant or sale will constitute the agreement by the Company to deliver Common Shares or cash, or a combination thereof, to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions (which may include the achievement of Management Objectives) during the Restriction Period as the Compensation Committee may specify. If a grant of Restricted Stock Units specifies that the Restriction Period will terminate only upon the achievement of Management Objectives or that the Restricted Stock Units will be earned based on the achievement of Management Objectives, then, notwithstanding anything to the contrary contained in subparagraph (c) below, such Restriction Period may not terminate sooner than after aone-year performance period. Each grant may specify in respect of such Management Objectives a minimum acceptable level of achievement and may set forth a formula for determining the number of Restricted Stock Units on which restrictions will terminate if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified Management Objectives.
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(b) Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Market Value per Share on the Date of Grant.
(c) If the Restriction Period lapses only by the passage of time rather than the achievement of Management Objectives as provided in subparagraph (a) above, each such grant or sale will be subject to a Restriction Period of not less than one year as determined by the Compensation Committee at the Date of Grant.
(d) Notwithstanding anything to the contrary contained in this Plan (including minimum vesting requirements), Restricted Stock Units may provide for continued vesting or the earlier lapse or other modification of the Restriction Period, including in the event of the retirement, death or disability of a Participant, or a Change of Control;provided,however, that no award of Restricted Stock Units intended to be a Qualified Performance-Based Award will provide for such early lapse or modification of the Restriction Period (other than in connection with the death or disability of the Participant or a Change of Control) to the extent such provisions would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
(e) During the Restriction Period, the Participant will have no rights of ownership in the Common Shares deliverable upon payment of the Restricted Stock Units and shall have no right to vote them, but the Compensation Committee may, at or after the Date of Grant, authorize the payment of dividend equivalents on such Restricted Stock Units on a deferred and contingent basis, either in cash or in additional Common Shares;provided,however, that dividend equivalents or other distributions on Common Shares underlying Restricted Stock Units shall be deferred until and paid contingent upon the vesting of such Restricted Stock Units.
(f) Each grant or sale of Restricted Stock Units will specify the time and manner of payment of the Restricted Stock Units that have been earned.
(g) Each grant or sale of Restricted Stock Units will be evidenced by an Evidence of Award and will contain such terms and provisions, consistent with this Plan, as the Compensation Committee may approve.
8. Cash Incentive Awards, Performance Shares and Performance Units. The Compensation Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting of Cash Incentive Awards, Performance Shares and Performance Units. Each such grant may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:
(a) Each grant will specify the number of Performance Shares or Performance Units, or amount payable with respect to a Cash Incentive Award, to which it pertains, which number or amount may be subject to adjustment to reflect changes in compensation or other factors;provided,however, that no such adjustment will be made in the case of a Qualified Performance-Based Award (other than in connection with the death or disability of the Participant or a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
(b) The Performance Period with respect to each Cash Incentive Award or grant of Performance Shares or Performance Units will be such period of time (not less than one year) as will be determined by the Compensation Committee, which may be subject to continued vesting or earlier lapse or other modification, including in the event of the retirement, death or disability of a Participant, or a Change of Control;provided,however, that no such adjustment will be made in the case of a Qualified Performance-Based Award (other than in connection with the death or disability of the Participant or a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. In such event, the Evidence of Award will specify the time and terms of delivery.
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(c) Any grant of a Cash Incentive Award, Performance Shares or Performance Units will specify Management Objectives which, if achieved, will result in payment or early payment of the award, and each grant may specify in respect of such Management Objectives a minimum acceptable level or levels of achievement and may set forth a formula for determining the number of Performance Shares or Performance Units, or amount payable with respect to a Cash Incentive Award, that will be earned if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum achievement of the specified Management Objectives.
(d) Each grant will specify the time and manner of payment of a Cash Incentive Award, Performance Shares or Performance Units that have been earned. Any grant may specify that the amount payable with respect thereto may be paid by the Company in cash, in Common Shares, in Restricted Stock or Restricted Stock Units or in any combination thereof.
(e) Any grant of a Cash Incentive Award, Performance Shares or Performance Units may specify that the amount payable or the number of Common Shares, shares of Restricted Stock or Restricted Stock Units payable with respect thereto may not exceed maximums specified by the Compensation Committee on the Date of Grant.
(f) The Compensation Committee may, on the Date of Grant of Performance Shares, provide for the payment of dividend equivalents to the holder thereof either in cash or in additional Common Shares, subject in all cases to deferral and payment on a contingent basis based on the Participant’s earning of the Performance Shares with respect to which such dividend equivalents are paid.
(g) Each grant of a Cash Incentive Award, Performance Shares or Performance Units will be evidenced by an Evidence of Award and will contain such other terms and provisions, consistent with this Plan, as the Compensation Committee may approve.
9. Awards toNon-Employee Directors. The Compensation Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting tonon-employee Directors of Option Rights, Appreciation Rights or other awards contemplated bySection 10 of this Plan and may also authorize the grant or sale of Common Shares, Restricted Stock or Restricted Stock Units tonon-employee Directors. Each grant of an award to anon-employee Director will be upon such terms and conditions as approved by the Compensation Committee, will not be required to be subject to any minimum vesting period, will be evidenced by an Evidence of Award in such form as will be approved by the Compensation Committee, and may provide for continued vesting or the earlier vesting of such award, including in the event of retirement, death or disability of thenon-employee Director, or a Change of Control. Each grant will specify in the case of an Option Right, an Option Price per share, and in the case of a Free-Standing Appreciation Right, a Base Price per share, which (except with respect to awards underSection 22 of this Plan) will not be less than the Market Value per Share on the Date of Grant. Each Option Right and Free-Standing Appreciation Right granted under this Plan to anon-employee Director will expire not more than 10 years from the Date of Grant and will be subject to earlier termination as hereinafter provided. If anon-employee Director subsequently becomes an employee of the Company or a Subsidiary while remaining a member of the Board, any award held under this Plan by such individual at the time of such commencement of employment will not be affected thereby.Non-employee Directors, pursuant to thisSection 9, may be awarded, or may be permitted to elect to receive, pursuant to procedures established by the Compensation Committee, all or any portion of their annual retainer, meeting fees or other fees in Common Shares, Restricted Stock, Restricted Stock Units or other awards under this Plan in lieu of cash.
10. Other Awards.
(a) The Compensation Committee may, subject to limitations under applicable law and underSection 3 of this Plan, grant to any Participant Common Shares or such other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Common Shares or factors that may influence the value of such shares, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into Common Shares,
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purchase rights for Common Shares, awards with value and payment contingent upon performance of the Company or specified Subsidiaries, affiliates or other business units thereof or any other factors designated by the Compensation Committee, and awards valued by reference to the book value of Common Shares or the value of securities of, or the performance of specified Subsidiaries or affiliates or other business units of the Company. The Compensation Committee shall determine the terms and conditions of such awards. Common Shares delivered pursuant to an award in the nature of a purchase right granted under thisSection 10 shall be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation, cash, Common Shares, other awards, notes or other property, as the Compensation Committee shall determine.
(b) Cash awards, as an element of or supplement to any other award granted under this Plan, may also be granted pursuant to thisSection 10 of this Plan.
(c) The Compensation Committee may grant Common Shares as a bonus, or may grant other awards in lieu of obligations of the Company or a Subsidiary to pay cash or deliver other property under this Plan or under other plans or compensatory arrangements, subject to such terms as shall be determined by the Compensation Committee in a manner that complies with Section 409A of the Code.
(d) If the earning or vesting of, or elimination of restrictions applicable to, an award granted under thisSection 10 is based only on the passage of time rather than the achievement of Management Objectives, the period of time shall be no shorter than one year as determined by the Compensation Committee at the Date of Grant. If the earning or vesting of, or elimination of restrictions applicable to, awards granted under thisSection 10 is based on the achievement of Management Objectives, the earning, vesting or restriction period may not terminate sooner than after aone-year performance period.
(e) The Compensation Committee may, at or after the Date of Grant, authorize the payment of dividends or dividend equivalents on awards granted under thisSection 10 on a deferred and contingent basis, either in cash or in additional Common Shares;provided,however, that dividend equivalents or other distributions on Common Shares underlying awards granted under thisSection 10 will be deferred until and paid contingent upon the earning of such awards.
(f) Notwithstanding anything to the contrary contained in this Plan (including minimum vesting requirements), any award under thisSection 10 may provide for the earning or vesting of, or earlier elimination of restrictions applicable to, such award, including in the event of the retirement, death or disability of the Participant, or a Change of Control;provided,however, that no such adjustment will be made in the case of a Qualified Performance-Based Award (other than in connection with the death or disability of the Participant, or a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. In such event, the Evidence of Award will specify the time and terms of delivery.
11. Transferability.
(a) Except as otherwise determined by the Compensation Committee, no Option Right, Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Cash Incentive Award, award contemplated bySection 10 of this Plan or dividend equivalents paid with respect to awards made under this Plan shall be transferable by the Participant except by will or the laws of descent and distribution, and in no event shall any such award granted under this Plan be transferred for value. Except as otherwise determined by the Compensation Committee, Option Rights and Appreciation Rights will be exercisable during the Participant’s lifetime only by him or her or, in the event of the Participant’s legal incapacity to do so, by his or her guardian or legal representative acting on behalf of the Participant in a fiduciary capacity under state law and/or court supervision.
(b) The Compensation Committee may specify at the Date of Grant that part or all of the Common Shares that are (i) to be issued or transferred by the Company upon the exercise of Option
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Rights or Appreciation Rights, upon the termination of the Restriction Period applicable to Restricted Stock Units or upon payment under any grant of Performance Shares or Performance Units or other awards under this Plan or (ii) no longer subject to the substantial risk of forfeiture and restrictions on transfer referred to inSection 6 of this Plan, will be subject to further restrictions on transfer.
12. Adjustments. The Compensation Committee shall make or provide for such adjustments in the number of and kind of Common Shares covered by outstanding Option Rights, Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units granted hereunder and, if applicable, in the number of and kind of Common Shares covered by other awards granted pursuant toSection 10 hereof, in the Option Price and Base Price provided in outstanding Option Rights and Appreciation Rights, respectively, in Cash Incentive Awards, and in other award terms, as the Compensation Committee, in its sole discretion, exercised in good faith, determines is equitably required to prevent dilution or enlargement of the rights of Participants or Optionees that otherwise would result from (a) any extraordinary cash dividend, stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) any merger, consolidation,spin-off, split- off,spin-out,split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event or in the event of a Change of Control, the Compensation Committee may provide in substitution for any or all outstanding awards under this Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and shall require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each Option Right or Appreciation Right with an Option Price or Base Price, respectively, greater than the consideration offered in connection with any such transaction or event or Change of Control, the Compensation Committee may in its sole discretion elect to cancel such Option Right or Appreciation Right without any payment to the person holding such Option Right or Appreciation Right. The Compensation Committee shall also make or provide for such adjustments in the numbers of Common Shares specified inSection 3 of this Plan as the Compensation Committee in its sole discretion, exercised in good faith, determines is appropriate to reflect any transaction or event described in thisSection 12;provided,however, that any such adjustment to the number specified inSection 3(c)(i) will be made only if and to the extent that such adjustment would not cause any Option Right intended to qualify as an Incentive Stock Option to fail to so qualify.
13. Administration of the Plan.
(a) This Plan will be administered by the Compensation Committee. The Compensation Committee may from time to time delegate all or any part of its authority under this Plan to any subcommittee thereof. To the extent of any such delegation, references in this Plan to the Compensation Committee will be deemed to be references to such subcommittee.
(b) The interpretation and construction by the Compensation Committee of any provision of this Plan or of any agreement, notification or document evidencing the grant of Option Rights, Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, a Cash Incentive Award or other awards pursuant toSection 10 of this Plan and any determination by the Compensation Committee pursuant to any provision of this Plan or of any such agreement, notification or document will be final and conclusive. No member of the Compensation Committee will be liable for any such action or determination made in good faith. In addition, the Compensation Committee is authorized to take any action it determines in its sole discretion to be appropriate subject only to the express limitations contained in this Plan, and no authorization in any Plan section or other provision of this Plan is intended or may be deemed to constitute a limitation on the authority of the Compensation Committee.
(c) To the extent permitted by law, the Compensation Committee or, to the extent of any delegation as provided inSection 13(a), the subcommittee, may delegate to one or more of its members or to one or more officers of the Company, or to one or more agents or advisors, such administrative duties or powers as it may deem advisable, and the Compensation Committee, the subcommittee, or any person to whom duties or powers have been delegated as aforesaid, may employ one
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or more persons to render advice with respect to any responsibility the Compensation Committee, the subcommittee or such person may have under this Plan. The Compensation Committee or the subcommittee may, by resolution, authorize one or more officers of the Company to do one or both of the following on the same basis as the Compensation Committee or the subcommittee: (i) designate employees to be recipients of awards under this Plan; and (ii) determine the size of any such awards;provided,however, that (A) the Compensation Committee or the subcommittee shall not delegate such responsibilities to any such officer for awards granted to an employee who is an officer, Director, or more than 10% “beneficial owner” (as such term is defined in Rule13d-3 promulgated under the Exchange Act) of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Compensation Committee in accordance with Section 16 of the Exchange Act, or to any Participant who is, or is determined by the Compensation Committee to be likely to become, a “covered employee” within the meaning of Section 162(m) of the Code (or any successor provision); (B) the resolution providing for such authorization shall set forth the total number of Common Shares such officer(s) may grant; and (C) the officer(s) shall report periodically to the Compensation Committee or the subcommittee, as the case may be, regarding the nature and scope of the awards granted pursuant to the authority delegated.
14. Detrimental Activity and Recapture Provisions. Any Evidence of Award may provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Compensation Committee from time to time, if a Participant, either (a) during employment or other service with the Company or a Subsidiary, or (b) within a specified period after termination of such employment or service, engages in any detrimental activity, as described in the applicable Evidence of Award. In addition, notwithstanding anything in this Plan to the contrary, any Evidence of Award may also provide for the cancellation or forfeiture of an award or the forfeiture and repayment to the Company of any Common Shares issued under and/or any other benefit related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be required by the Compensation Committee or under Section 10D of the Exchange Act and any applicable rules or regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the Common Shares may be traded.
15. Non U.S. Participants. In order to facilitate the making of any grant or combination of grants under this Plan, the Compensation Committee may provide for such special terms for awards to Participants who are foreign nationals or who are employed by the Company or any Subsidiary outside of the United States of America or who provide services to the Company or any Subsidiary under an agreement with a foreign nation or agency, as the Compensation Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Compensation Committee may approve such supplements to or amendments, restatements or alternative versions of this Plan (including without limitation,sub-plans) as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, will include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the shareholders of the Company.
16. Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes or other amounts required to be withheld, which arrangements (in the discretion of the Compensation Committee) may include relinquishment of a portion of such benefit. If a Participant’s benefit is to be received in the form of Common Shares, and such Participant fails to make arrangements for the payment of taxes or other amounts, then, unless otherwise determined by the Compensation
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Committee, the Company shall withhold such Common Shares having a value equal to the amount required to be withheld. Notwithstanding the foregoing, when a Participant is required to pay the Company an amount required to be withheld under applicable income, employment, tax and other laws, the Participant may elect, unless otherwise determined by the Compensation Committee, to satisfy the obligation, in whole or in part, by having withheld, from the shares required to be delivered to the Participant, Common Shares having a value equal to the amount required to be withheld, or by delivering to the Company other Common Shares held by such Participant. The shares used for tax or other withholding will be valued at an amount equal to the fair market value of such Common Shares on the date the benefit is to be included in Participant’s income. In no event shall the market value of the Common Shares to be withheld and delivered pursuant to this Section to satisfy applicable withholding taxes or other amounts in connection with the benefit exceed the maximum amount of taxes that could be required to be withheld. Participants shall also make such arrangements as the Company may require for the payment of any withholding tax or other obligation that may arise in connection with the disposition of Common Shares acquired upon the exercise of Option Rights.
17. Amendments, Etc.
(a) The Board (and only the Board) may at any time and from time to time amend this Plan in whole or in part;provided,however, that if an amendment to this Plan (i) would materially increase the benefits accruing to Participants under the Plan, (ii) would materially increase the number of securities which may be issued under the Plan, (iii) would materially modify the requirements for participation in the Plan or (iv) must otherwise be approved by the shareholders of the Company in order to comply with applicable law or the rules of the New York Stock Exchange or, if the Common Shares are not traded on the New York Stock Exchange, the principal national securities exchange upon which the Common Shares are traded or quoted, then, such amendment will be subject to shareholder approval and will not be effective unless and until such approval has been obtained.
(b) Except in connection with a corporate transaction or event described inSection 12 of this Plan or in connection with a Change of Control, the terms of outstanding awards may not be amended to reduce the Option Price of outstanding Option Rights or the Base Price of outstanding Appreciation Rights, or cancel outstanding “underwater” Option Rights or Appreciation Rights (including following a Participant’s voluntary surrender of “underwater” Option Rights or Appreciation Rights) in exchange for cash, other awards or Option Rights or Appreciation Rights with an Option Price or Base Price, as applicable, that is less than the Option Price of the original Option Rights or Base Price of the original Appreciation Rights, as applicable, without shareholder approval. ThisSection 17(b) is intended to prohibit the repricing of “underwater” Option Rights and Appreciation Rights and will not be construed to prohibit the adjustments provided for inSection 12 of this Plan. Notwithstanding any provision of this Plan to the contrary, thisSection 17(b) may not be amended without approval by the Company’s shareholders.
(c) If permitted by Section 409A of the Code and Section 162(m) of the Code, but subject to the paragraph that follows, notwithstanding this Plan’s minimum vesting requirements, and including in case of termination of employment or service by reason of death, disability or normal or early retirement, or in the case of unforeseeable emergency or other circumstances, or in the event of a Change of Control, to the extent a Participant holds an Option Right or Appreciation Right not immediately exercisable in full, or any shares of Restricted Stock as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Restricted Stock Units as to which the Restriction Period has not been completed, or any Cash Incentive Awards, Performance Shares or Performance Units which have not been fully earned, or any other awards made pursuant toSection 10 subject to any vesting schedule or transfer restriction, or holds Common Shares subject to any transfer restriction imposed pursuant toSection 11(b) of this Plan, the Compensation Committee may, in its sole discretion, provide for continued vesting or accelerate the time at which such Option Right, Appreciation Right or other award may be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such Restriction Period will end or the time at which such Cash Incentive Awards, Performance Shares or Performance Units will be deemed to have been fully earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such award, except in the case of a Qualified Performance-Based Award where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
(d) Subject toSection 17(b) hereof, the Compensation Committee may amend the terms of any award theretofore granted under this Plan prospectively or retroactively, except in the case of a Qualified Performance-Based Award (other than in connection with the Participant’s death or disability, or a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. In such case, the Compensation Committee will not make any modification of the Management Objectives or the level or levels of achievement with respect to such Qualified Performance-Based Award. Subject toSection 12 above, no such amendment shall impair the rights of any Participant without his or her consent. The Board may, in its discretion, terminate this Plan at any time. Termination of this Plan will not affect the rights of Participants or their successors under any awards outstanding hereunder and not exercised in full on the date of termination.
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18. Compliance with Section 409A of the Code.
(a) To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Participants. This Plan and any grants made hereunder shall be administered in a manner consistent with this intent. Any reference in this Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.
(b) Neither a Participant nor any of a Participant’s creditors or beneficiaries shall have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under this Plan and grants hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to a Participant or for a Participant’s benefit under this Plan and grants hereunder may not be reduced by, or offset against, any amount owed by a Participant to the Company or any of its affiliates.
(c) If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (i) the Participant shall be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company makes a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to thesix-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest, on the tenth business day of the seventh month after such separation from service.
(d) Solely with respect to any award that constitutes nonqualified deferred compensation subject to Section 409A of the Code and that is payable on account of a Change of Control (including any installments or stream of payments that are accelerated on account of a Change of Control), a Change of Control shall occur only if such event also constitutes a “change in the ownership,” “change in effective control,” and/or a “change in the ownership of a substantial portion of assets” of the Company as those terms are defined under Treasury Regulation§1.409A-3(i)(5), but only to the extent necessary to establish a time and form of payment that complies with Section 409A of the Code, without altering the definition of Change of Control for any purpose in respect of such award.
(e) Notwithstanding any provision of this Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and grants hereunder as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be
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imposed on a Participant or for a Participant’s account in connection with this Plan and grants hereunder (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its affiliates shall have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.
19. Governing Law. This Plan and all grants and awards and actions taken hereunder shall be governed by and construed in accordance with the internal substantive laws of the State of Ohio.
20. Effective Date/Termination. This Plan will be effective as of the Effective Date. No grants will be made on or after the Effective Date under the Predecessor Plan, provided that outstanding awards granted under the Predecessor Plan will continue unaffected following the Effective Date. No grant will be made under this Plan on or after the tenth anniversary of the Effective Date, but all grants made prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan.
21. Miscellaneous.
(a) The Company will not be required to issue any fractional Common Shares pursuant to this Plan. The Compensation Committee may provide for the elimination of fractions or for the settlement of fractions in cash.
(b) This Plan will not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time.
(c) Except with respect toSection 21(e) of this Plan, to the extent that any provision of this Plan would prevent any Option Right that was intended to qualify as an Incentive Stock Option from qualifying as such, that provision will be null and void with respect to such Option Right. Such provision, however, will remain in effect for other Option Rights and there will be no further effect on any provision of this Plan.
(d) No award under this Plan may be exercised by the holder thereof if such exercise, and the receipt of cash or stock thereunder, would be, in the opinion of counsel selected by the Company, contrary to law or the regulations of any duly constituted authority having jurisdiction over this Plan.
(e) Absence on leave approved by a duly constituted officer of the Company or any of its Subsidiaries shall not be considered interruption or termination of service of any employee for any purposes of this Plan or awards granted hereunder.
(f) No Participant shall have any rights as a stockholder with respect to any Common Shares subject to awards granted to him or her under this Plan prior to the date as of which he or she is actually recorded as the holder of such Common Shares upon the stock records of the Company.
(g) The Compensation Committee may condition the grant of any award or combination of awards authorized under this Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Company or a Subsidiary to the Participant.
(h) If any provision of this Plan is or becomes invalid, illegal or unenforceable in any jurisdiction, or would disqualify this Plan or any award under any law deemed applicable by the Compensation Committee, such provision shall be construed or deemed amended or limited in scope to conform to applicable laws or, in the discretion of the Compensation Committee, it shall be stricken and the remainder of this Plan shall remain in full force and effect.
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22. Stock-Based Awards in Substitution for Option Rights or Awards Granted by Other Company. Notwithstanding anything in this Plan to the contrary:
(a) Awards may be granted under this Plan in substitution for or in conversion of, or in connection with an assumption of, stock options, stock appreciation rights, restricted stock, restricted stock units or other stock or stock-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with the Company or any Subsidiary. Any conversion, substitution or assumption will be effective as of the close of the merger or acquisition, and, to the extent applicable, will be conducted in a manner that complies with Section 409A of the Code. The awards so granted may reflect the original terms of the awards being assumed or substituted or converted for and need not comply with other specific terms of this Plan, and may account for Common Shares substituted for the securities covered by the original awards and the number of shares subject to the original awards, as well as any exercise or purchase prices applicable to the original awards, adjusted to account for differences in stock prices in connection with the transaction.
(b) In the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary merges has shares available under apre-existing plan previously approved by stockholders and not adopted in contemplation of such acquisition or merger, the shares available for grant pursuant to the terms of such plan (as adjusted, to the extent appropriate, to reflect such acquisition or merger) may be used for awards made after such acquisition or merger under this Plan;provided,however, that awards using such available shares may not be made after the date awards or grants could have been made under the terms of thepre-existing plan absent the acquisition or merger, and may only be made to individuals who were not employees or directors of the Company or any Subsidiary prior to such acquisition or merger.
(c) Any Common Shares that are issued or transferred by, or that are subject to any awards that are granted by, or become obligations of, the Company underSections 22(a) or22(b) of this Plan will not reduce the Common Shares available for issuance or transfer under this Plan or otherwise count against the limits contained inSection 3 of this Plan. In addition, no Common Shares subject to an award that is granted by, or becomes an obligation of, the Company underSections 22(a) or22(b) of this Plan, will be added to the aggregate limit contained inSection 3(a)(i) of this Plan if such award is cancelled or forfeited, expires or is settled for cash (in whole or in part).
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POLYONE CORPORATION 33587 WALKER ROAD AVON LAKE, OH 44012 | VOTE BY INTERNET -www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. eastern time on May 10, 2017. Have your proxy and voting instruction card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. | |
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you may consent to receiving all future proxy statements, proxy and voting instruction cards and annual reports electronically viae-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. | ||
VOTE BY PHONE -1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. eastern time on May 10, 2017. Have your proxy and voting instruction card in hand when you call and then follow the instructions. | ||
VOTE BY MAIL Mark, sign and date your proxy and voting instruction card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
E18545-P85584 | KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY | ||||
THIS PROXY AND VOTING INSTRUCTION CARD IS VALID ONLY WHEN SIGNED AND DATED. |
POLYONE CORPORATION | For All | Withhold All | For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
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The Board of Directors recommends you vote FOR all the nominees listed in Proposal 1, FOR Proposals 2, 4 and 5, and 1 Year on Proposal 3. | ||||||||||||||||||||||||||||||||||||
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1. | Election of Directors: | |||||||||||||||||||||||||||||||||||
Nominees:
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01) | Richard H. Fearon | 06) | Kim Ann Mink | |||||||||||||||||||||||||||||||||
02) | Gregory J. Goff | 07) | Robert M. Patterson | |||||||||||||||||||||||||||||||||
03) | William R. Jellison | 08) | William H. Powell | |||||||||||||||||||||||||||||||||
04) | Sandra B. Lin | 09) | Kerry J. Preete | |||||||||||||||||||||||||||||||||
05) | Richard A. Lorraine | 10) | William A. Wulfsohn | |||||||||||||||||||||||||||||||||
For | Against | Abstain | For | Against | Abstain | |||||||||||||||||||||||||||||||
2. | Approval, on an advisory basis, of named executive officer compensation. | ☐ | ☐ | ☐ | 4. | Approval of the PolyOne Corporation 2017 Equity and Incentive Compensation Plan. | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||
1 Year | 2 Years | 3 Years | Abstain | |||||||||||||||||||||||||||||||||
3. | Approval, on an advisory basis, of the frequency of future advisory votes to approve named executive officer compensation. | ☐ | ☐ | ☐ | ☐ | 5. | Ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for the year ending December 31, 2017. | ☐ | ☐ | ☐ | ||||||||||||||||||||||||||
NOTE:Such other business as may properly come before the meeting or any adjournment thereof. | ||||||||||||||||||||||||||||||||||||
THIS PROXY AND VOTING INSTRUCTION CARD WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED AS THE BOARD RECOMMENDS. | ||||||||||||||||||||||||||||||||||||
For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | |||||||||||||||||||||||||||||||||||
Please indicate if you plan to attend this meeting. | ☐ | ☐ | ||||||||||||||||||||||||||||||||||
Yes | No | |||||||||||||||||||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
V.1.1
PolyOne Corporation
Summary2017 ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 11, 2017
9:00 a.m.
PolyOne Corporation Headquarters
33587 Walker Road
Avon Lake, Ohio 44012
Important Notice Regarding the Availability of Special Items (Unaudited)Proxy Materials for the Annual Meeting:
(In millions, except per share data)The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
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E18546-P85584
Special items : | Year Ended December 31, | |||||||
2013 | 2012 | |||||||
Cost of sales: | ||||||||
Employee separation and plant phase-out costs | $ | (16.1 | ) | $ | (0.4 | ) | ||
Reimbursement of previously incurred environmental costs | 23.5 | – | ||||||
Environmental remediation costs | (61.2 | ) | (12.8 | ) | ||||
Acquisition related costs | (7.6 | ) | (5.4 | ) | ||||
Pension and other post-retirement mark-to-market adjustment | 1.6 | (1.3 | ) | |||||
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Impact on cost of sales | (59.8 | ) | (19.9 | ) | ||||
Selling and administrative expense: | ||||||||
Employee separation and plant phase-out costs | (38.2 | ) | (11.1 | ) | ||||
Legal related (costs) gains | 5.2 | (0.6 | ) | |||||
Unrealized gain (loss) on foreign currency option contracts | 1.1 | (1.1 | ) | |||||
Acquisition/divestiture related costs | (7.6 | ) | (3.9 | ) | ||||
Pension and other post-retirement mark-to-market adjustment | 42.4 | (40.7 | ) | |||||
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Impact on selling and administrative expense | 2.9 | (57.4 | ) | |||||
Gain on sale of investment in equity affiliates | 26.9 | 23.4 | ||||||
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Impact on operating income | (30.0 | ) | (53.9 | ) | ||||
Debt extinguishment costs | (15.8 | ) | – | |||||
Bridge loan commitment fees – interest expense | (1.9 | ) | (1.3 | ) | ||||
Other income, net | 1.4 | 0.1 | ||||||
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Impact on income from continuing operations before income taxes | (46.3 | ) | (55.1 | ) | ||||
Income tax benefit on special items | 15.9 | 19.4 | ||||||
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Impact of special items on net income attributable to PolyOne | $ | (30.4 | ) | $ | (35.7 | ) | ||
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Basic earnings per common share impact | $ | (0.32 | ) | $ | (0.40 | ) | ||
Diluted earnings per common share impact | $ | (0.32 | ) | $ | (0.40 | ) | ||
Weighted average shares used to compute earnings per share: | ||||||||
Basic | 95.5 | 89.1 | ||||||
Diluted | 96.5 | 89.8 |
Page A-2
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This proxy and voting instruction card is solicited by the Board of Directors for use at and in connection with the Annual Meeting of Shareholders on May 11, 2017. | ||||||||||||||||||||
The shares of common stock held will be voted as you specify on the reverse side. | ||||||||||||||||||||
If no choice is specified, this proxy and voting instruction card will be voted FOR all the nominees listed in Proposal 1, FOR Proposals 2, 4 and 5, and 1 Year on Proposal 3. |
By signing this proxy and voting instruction card, you revoke all prior proxies and appoint Lisa K. Kunkle, Bradley C. Richardson, and João José San Martin, and each of them, with full power of substitution, to vote the common shares of PolyOne Corporation, held of record onMarch 14, 2017, on the matters shown on the reverse side hereof and on any other matters that may come before the Annual Meeting of Shareholders and all adjournments. | ||||||||||||||||
IMPORTANT NOTICE TO PARTICIPANTS IN THE POLYONE RETIREMENT SAVINGS PLAN AND POLYONE CANADA INC. RETIREMENT SAVINGS PROGRAM: As a participant under either thePolyOne Retirement Savings Plan or thePolyOne Canada Inc. Retirement Savings Program(each a “Plan” and together the “Plans”),John Hancock Retirement Plan ServicesandSun Life Financial, each as Trustee of one of the Plans, have been requested to forward you important information concerning your rights as a participant in either of these Plans. The number of common shares you are eligible to direct the applicable Trustee to vote is based on your balance in the applicable Plan (based on your balance in the PolyOne Stock Fund) onMarch 14, 2017, the record date for the determination of shareholders eligible to vote at the Annual Meeting of Shareholders to be held onMay 11, 2017. We encourage you to exercise your rights under either of the Plans. Please review the enclosed documents carefully before deciding how to direct the applicable Trustee. Because the common shares in the Plans are registered in the name of the applicable Trustee, you will not be able to direct the common shares attributable to your interest in either Plan in person at the Annual Meeting of Shareholders. To give a proper direction, you must vote by returning this completed proxy and voting instruction card, signed and dated, in the enclosed envelope or by following telephone or internet voting procedures set forth in this proxy and voting instruction card. Directions must be received byMay 9, 2017. If you give a proper direction, the applicable Trustee will vote the common shares attributable to your interest in either of the Plans as you direct, unless otherwise required by law. If you do not give a proper direction, the applicable Trustee will vote the common shares attributable to your interest in the same proportion as the proper directions that the Trustee does receive, unless otherwise required by law. Directions received afterMay 9, 2017will not be counted for common shares held in the Plans. Your direction to either of the Trustees is confidential and will not be disclosed unless required by law. As a participant under either thePolyOne Retirement Savings Plan or the PolyOne Canada Inc. Retirement Savings Program, I hereby direct John Hancock Retirement Plan Services as Trustee of the PolyOne Retirement Savings Plan orSun Life Financial as Trustee of the PolyOne Canada Inc. Retirement Savings Program to vote (in person or by proxy), as designated on the reverse side, the whole number of common shares of PolyOne Corporation that are held by the applicable Trustee and attributable to my interest in the applicable Plan onMarch 14, 2017, and also a proportionate number of shares as of such date to which no directions have been received, at the Annual Meeting of Shareholders to be held onMay 11, 2017. | ||||||||||||||||
Address Changes/Comments: | ||||||||||||||||||||
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PolyOne Corporation
2014 ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 15, 2014
9:00 a.m.
PolyOne Corporation Headquarters
33587 Walker Road
Avon Lake, Ohio 44012
proxy
This proxy is solicited by the Board of Directors for use at the Annual Meeting of Shareholders on May 15, 2014.
The shares of common stock you hold will be voted as you specify on the reverse side.
If no choice is specified, this proxy will be voted FOR all the nominees listed in Proposal 1 and FOR Proposals 2 and 3.
By signing this proxy, you revoke all prior proxies and appoint Bradley C. Richardson, Lisa K. Kunkle and Kenneth M. Smith, and each of them, with full power of substitution, to vote your common shares of PolyOne Corporation, held of record on March 18, 2014, on the matters shown on the reverse side hereof and on any other matters that may come before the Annual Meeting of Shareholders and all adjournments.
See reverse for voting instructions.
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See reverse for voting instructions. | ||||||||||||
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PolyOne Corporation
2014 ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 15, 2014
9:00 a.m.
PolyOne Corporation Headquarters
33587 Walker Road
Avon Lake, Ohio 44012
voting instructions
This voting instruction card is solicited by the Board of Directors in connection with the Annual Meeting of Shareholders on May 15, 2014.
As a participant under either the PolyOne Retirement Savings Plan or the PolyOne Canada Inc. Retirement Savings Program (each a “Plan”), I hereby direct New York Life Trust Company as trustee of The PolyOne Retirement Savings Plan or Sun Life Financial as trustee of the PolyOne Canada Inc. Retirement Savings Program (each a “Trustee”) to vote (in person or by proxy), as designated on the reverse side, the whole number of common shares of PolyOne Corporation that are held by the Trustee and attributable to my interest in the Plan on March 18, 2014, and also a proportionate number of shares as of such date as to which no directions have been received, at the Annual Meeting of Shareholders to be held on May 15, 2014.
See reverse for voting instructions.V.1.1