UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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x | Definitive Proxy Statement | |||
¨ | Definitive Additional Materials | |||
¨ | Soliciting Material Pursuant to§240.14a-12 | |||
Fortune Brands Home & Security, Inc. | ||||
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520 Lake Cook Road, Deerfield, Illinois 60015
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
March 3, 20152016
Dear Fellow Stockholders:
We are pleased to invite you to the Annual Meeting of Stockholders of Fortune Brands Home & Security, Inc. on Tuesday, April 28, 201526, 2016 at 8:00 a.m. (CDT) at the RenaissanceWestin Chicago North Shore, Hotel, 933 Skokie Boulevard, Northbrook,601 N. Milwaukee Avenue, Wheeling, Illinois. The following matters will be considered at the Annual Meeting:
Item 1: | The election of the | |
Item 2: | The ratification of the appointment by the Company’s Audit Committee of PricewaterhouseCoopers LLP as our independent registered public accounting firm for | |
Item 3: | An advisory vote on the compensation paid to the Company’s named executive officers (see page 45); and |
such other business as may properly come before the meeting.
Stockholders of record at the close of business on February 27, 2015,26, 2016, the record date for the meeting, are entitled to vote at the Annual Meeting.Stockholders who wish to attend the Annual Meeting in person should review the instructions beginning on page 1.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE. You may submit your proxy (1) by mail using a traditional proxy card, (2) by telephone at1-800-690-6903, or (3) through the Internet atwww.proxyvote.com. See pages 1-4 for voting instructions.
This Proxy Statement and accompanying proxy are first being distributed on or about March 10, 2015.11, 2016.
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Robert K. Biggart |
Senior Vice President, General Counsel and Secretary |
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to be Held Onon Tuesday, April 28, 2015.26, 2016.
This Notice of Annual Meeting and Proxy Statement and the Annual Report on Form 10-K for the fiscal year ended December 31, 20142015 (“Form 10-K”) are available at www.proxyvote.com.www.proxyvote.com.
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ITEM 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 44 | |||
ITEM 3 – ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION | 45 | |||
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Why did I receive these materials?
These materials were provided to you in connection with the solicitation by the Board of Directors (the “Board”) of Fortune Brands Home & Security, Inc. (“Fortune Brands” or the “Company”), of proxies to be voted at our 20152016 Annual Meeting of Stockholders and at any adjournment or postponement of the Annual Meeting. The Annual Meeting will take place on April 28, 201526, 2016 at 8:00 a.m. (CDT), at the RenaissanceWestin Chicago North Shore, Hotel, 933 Skokie Boulevard, Northbrook,601 N. Milwaukee Avenue, Wheeling, Illinois. This Proxy Statement describes the matters on which you, as a stockholder, are entitled to vote and gives you the information that you need to make an informed decision on these matters.
Why did I receive a “Notice of Internet Availability of Proxy Materials” instead of printed proxy materials?
Companies are permitted to distributeprovide stockholders with access to proxy materials to stockholders by providing access to these documents over the Internet instead of mailing a printed copy. We mailed a Notice of Internet Availability of Proxy Materials (the “Notice”) to most stockholders. The Notice contains instructions on how to access the proxy materials on the Internet, how to vote and how to request a printed set of proxy materials. This approach reduces the environmental impact and our costs of printing and distributing the proxy materials, while providing a convenient method of accessing the materials and voting.
The Notice contains instructionsCompany will make its Annual Report on howForm 10-K for the last fiscal year, including any financial statements or schedules, available to accessstockholders without charge, upon written request to the proxy materials onSecretary, Fortune Brands Home & Security, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015. The Company will furnish exhibits to Form 10-K to each stockholder requesting them upon payment of a $.10 per page fee to cover the Internet, how to request a printed set of proxy materials and how to vote.Company’s cost.
Can I get electronic access to the proxy materials if I received printed materials?
Yes. If you received printed proxy materials, you can also access them online atwww.proxyvote.com before voting your shares. The Company’s proxy materials are also available on our website athttp://ir.fbhs.comir.fbhs.com/annuals-proxies.cfm. Stockholders are encouraged to elect to receive future proxy materials electronically instead of paper.electronically. If you opt to receive our future proxy materials electronically, you will receive an email next year with instructions containing a link to view those proxy materials and a link to the proxy voting site.website. Your election to receive proxy materials by email will remain in effect until you terminate it or for as long as the email address provided by you is valid. Stockholders of record who wish to participate can enroll athttp://enroll.icsdelivery.com/fbhs. Beneficial owners should check the information provided bywith their bank or broker regarding the availability of this service.
What is the difference between being a stockholder of record and a beneficial owner?
If your shares are registered directly in your name with Wells Fargo Shareowner Services, the Company’s transfer agent, you are the “stockholder of record.” If your shares are held in a brokerage account or by a bank, you hold your shares in “street name” and are thea “beneficial owner” of those shares. The majority of stockholders are beneficial owners. For such shares, the bank or broker is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, youBeneficial owners have the right to direct that organizationtheir bank or broker on how to vote the shares held in yourtheir account by using the voting instructions provided to you by yourthe bank or broker.
Who is entitled to vote?
Only stockholders who owned the Company’s common stock of record at the close of business on February 27, 201526, 2016 are entitled to vote. Each holder of common stock is entitled to one vote per share. There were 159,220,079 shares152,579,248shares of common stock outstanding on February 27, 2015.26, 2016.
We request that persons who hold stock in their names or custody or in the names of nominees, for the benefit of others, forward copies of the Notice to the beneficial owners of our stock and request the authority to vote on their behalf.
FREQUENTLY ASKED QUESTIONS (CONTINUED)
Who can attend the meeting?
Only stockholders who owned Fortune Brands’ common stock as of the close of business on February 27, 2015,26, 2016, or their authorized representatives, may attend the Annual Meeting. At the entrance to the meeting, stockholders will be asked to present valid photo identification to determine if you owned common stock on February 27, 2015.26, 2016. If you are acting as a proxy, you will need to submit a valid written legal proxy signed by the owner of the common stock.You must bring such evidence with you to be admitted to the meeting.
Stockholders who own their shares in “street name” will be required to submit proof of ownership at the entrance to the meeting. Either your voting instruction card or brokerage statement reflecting your stock ownership as of February 27, 201526, 2016 may be used as proof of ownership.
FREQUENTLY ASKED QUESTIONS (CONTINUED)
• | the election of two Class II directors identified in this Proxy Statement (Item 1); |
• | the ratification of the appointment of our independent registered public accounting firm(Item 2); and |
• | the advisory vote on the compensation paid to the Company’s named executive officers(Item 3). |
How do I vote?
If you received a Notice in the mail, you can either vote by (i) Internet (www.proxyvote.com) or (ii) in person at the Annual Meeting. Voting instructions are provided on the Notice. If you request a paper copy of the materials, you may vote by mail.
Stockholders who received printed proxy materials in the mail can vote by (i) filling out the proxy card and returning it in the postage paid return envelope, (ii) telephone (800-690-6903), (iii) Internet (www.proxyvote.com), or (iv) in person at the Annual Meeting of Stockholders. Voting instructions are provided on the proxy card.
Stockholders who elected to receivereceived proxy materials electronically can vote by (i) Internet (www.proxyvote.com), (ii) telephone (800-690-6903), or (iii) in person at the Annual Meeting of Stockholders.
If you are a beneficial owner of our shares, you must vote by giving instructions to your bank or broker. You should follow the voting instructions on the form that you receive from your bank or broker. The availability of telephone or Internet voting will depend on your bank’s or broker’s voting process.To be able to vote in person at the Annual Meeting, you must obtain a legal proxy from your bank or broker in advance and present it to the Inspector of Election with your completed ballot at the Annual Meeting.
How will my proxy be voted?
Your proxy card, when properly signed and returned to us, or processed by telephone or via the Internet, and not revoked, will be voted in accordance with your instructions. If any matter is properly presented other than the three items described below,above, the Proxy Committee (the persons named in the enclosed proxy card or, if applicable, their substitutes), will have discretion to vote your shares in their best judgment.
What if I don’t mark the boxes on my proxy or voting instruction card?
Unless you give other instructions on your proxy card, or unless you give other instructions when you cast your vote by telephone or the Internet, the Proxy Committee will vote your shares in accordance with the recommendations of the Board, which are:areFOR Items 1, 2 and 3.
FREQUENTLY ASKED QUESTIONS (CONTINUED)
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If you hold shares beneficially and you have not provided voting instructions, your bank or broker is only permitted to use its discretion and vote your shares on certain routine matters (such as Item(Item 2). If you have not provided voting instructions to your bank or broker on non-routine matters (such as Items(Items 1 and 3), your bank or broker is not permitted to use discretion and vote your shares.Therefore, we urge you to give voting instructions to your bank or broker on all three voting items. Shares that are not permitted to be voted by your bank or broker with respect to any matter are called “broker non-votes.” Broker non-votes are not considered votes for or against a proposal and will have no direct impact on any proposal.
FREQUENTLY ASKED QUESTIONS (CONTINUED)
How many votes are needed to approve an item?
The nominees for director, in non-contested elections, must receive a majority of the votes cast at the meeting, in person or by proxy, to be elected. A proxy card marked to abstain on the election of a director will not be counted as a vote cast with respect to that director.
Under the Company’s majority vote Bylaw provision relating to the election of directors, if the number of votes cast “for” a director nominee does not exceed the number of votes cast “against” the director nominee, then the director must tender his or her resignation from the Board promptly after the certification of the stockholder vote. The Board (excluding the nominee in question) will decide within 90 days of that certification, through a process managed by the Nominating and Corporate Governance Committee, whether to accept the resignation. The Board’s explanation of its decision will be promptly disclosed in a filing with the Securities and Exchange Commission (“SEC”).
The affirmative vote of shares representing a majority in voting power of the common stock, present in person or represented by proxy at the meeting, and entitled to vote is necessary for the approval of Items 2 and 3. Proxy cards marked as abstentions on Items 2 and 3 will not be voted and will have the effect of a negative vote.
How can I revoke my proxy or change my vote?
You may revoke your proxy by giving written notice to the Secretary of the Company or by delivering a later dated proxy at any time before it is actually voted. If you voted on the Internet or by telephone, you may change your vote by voting again. Your last vote is the vote that will be counted. Attendance at the Annual Meeting does not revoke your proxy unless you vote at the Annual Meeting.
Will my vote be public?
As a matter of policy, proxies, ballots and tabulations that identify individual stockholders are not publicly disclosed, but are available to the independent Inspector of Election, the proxy solicitation firm and certain employees of the Company.
What constitutes a quorum?
The presence at the meeting, in person or by proxy, of the holders of a majority in voting power of the outstanding shares of common stock entitled to vote will constitute a quorum. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting.
Our Board is soliciting this proxy. The Company will bear the expense of soliciting proxies for this meeting, including mailing costs. To assure that there is sufficient representation at the meeting, our proxy solicitor or our employees may solicit proxies by telephone, facsimile or in person. We have retained Innisfree M&A Incorporated as our proxy solicitor to aid in soliciting proxies for a fee, estimated at $15,000, plus reasonable out-of-pocket expenses. Our total expenses will depend upon the volume of shares represented by the proxies received in response to the Notice and Proxy Statement.
FREQUENTLY ASKED QUESTIONS (CONTINUED)
What if I am a participant in the Fortune Brands Home & Security Retirement Savings Plan or the Fortune Brands Home & Security Hourly Employee Retirement Savings Plan?
We are mailing a printed copy of the proxy materials to participants in the Fortune Brands Home & Security Retirement Savings Plan and the Fortune Brands Home & Security Hourly Employee Retirement Savings Plan (collectively, the “Savings Plans”) who invest in the Fortune Brands Stock Fund underthrough the Savings Plans. The Trustee of the Savings Plans, as record holder of the Fortune Brands common stock held in the Savings Plans, will vote whole shares attributable to your interest in the Fortune Brands Stock Fund in accordance with your directions. If you invest in the Fortune Brands Stock Fund under the Savings Plans and you sign and return the enclosed proxy card, we will forward it to the Trustee of the Savings Plans. The proxy card will serve as instruction to the Trustee to vote the whole shares attributable to your interest in the manner you indicate on the card. If the Trustee does not receive timely direction with respect to the voting of your shares held in the Fortune Brands Stock Fund, the Trustee will vote such shares in the same manner and in the same proportion as the shares for which the Trustee received voting instructions.
How can I eliminate multiple mailings to the same address?
If you and other residents at your mailing address are registered stockholders and you receive more than one copy of the Notice, but you wish to eliminate the duplicate mailings, you must submit a written request to the Company’s transfer agent, Wells Fargo. To request the elimination of duplicate copies, please write to Wells Fargo Shareowner Services, 1110 Centre Pointe Curve, Suite 101, MAC N9173-010, Mendota Heights, Minnesota 55120.
If you and other residents at your mailing address own shares in street name, your broker or bank may have sent you a notice that your household will receive only one Notice or one set of proxy materials for each company in which you hold stock through that broker or bank. This practice, known as “householding,” is designed to reduce our printing and postage costs. If you did not respond, the broker or bank will assume that you have consented, and will send only one copy of the Notice to your address. You may revoke your consent to householding at any time by sending your name, the name of your brokerage firm, and your account number to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. The revocation of your consent to householding will be effective 30 days following its receipt. In any event, if you did not receive an individual copy of the Notice, or if you wish to receive individual copies of the Notice or our proxy materials for future meetings, we will send a copy to you if you call Shareholder Services at (847) 484-4538, or write to the Secretary of Fortune Brands Home & Security, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015.
How can I submit a stockholder proposal or nomination next year?
Our Bylaws provide that in order for a stockholder to (i) nominate a candidate for election to our Board at the 2017 Annual Meeting, or (ii) propose business for consideration at the 2017 Annual Meeting, written notice containing the information required by the Bylaws must be delivered to the Secretary of the Company no less than 90 days nor more than 120 days before the anniversary of the prior year’s Annual Meeting, that is, after December 27, 2016 but no later than January 26, 2017 for the 2017 Annual Meeting.
Under SEC rules, if a stockholder wishes to submit a proposal for possible inclusion in the Company’s 2017 proxy statement pursuant toRule 14a-8 of the Exchange Act, we must receive it on or before November 11, 2016.
Copies of the Restated Certificate of Incorporation and Bylaws are available upon written request to the Secretary, Fortune Brands Home & Security, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015. The person presiding at the meeting is authorized to determine if a proposed matter is properly brought before the meeting or if a nomination is properly made.
Summary of Qualification of Directors
The Board believes that all directors must possess a considerable amount of education and business management experience (such as experience as a chief executive, chief operating or chief financial officer) and education.. The Board also believes that it is necessary for each of the Company’s directors to possess many qualities and skills. The Board believes that there are certain general requirements which are mandatory for service on the Company’s Board, while there are other skills and experiences that should be represented on the Board as a whole, but not necessarily by each individual director.
General requirements for all directors:
Extensive executive leadership experience
Excellent business judgment
High level of integrity and ethics
Original thinking
Strong commitment to the Company’s goal of maximizing stockholder value
Experiences,Specific experiences, qualifications, and backgrounds to be represented on the Board as a whole:
Financial and/or accounting expertise
Consumer products expertise
Knowledge of international markets
Chief executive officer/chief operating officer/chief financial officer experience
Extensive board experience
Diversity of skill, background and viewpoint
The process used by the Nominating and Corporate Governance Committee in recommending qualified director candidates is described below under Corporate Governance – Director Nomination Process (see page 910 of this Proxy Statement).
Election of Class III Directors
The Board consists of eightnine members and is divided into three classes, each having three-year terms that expire in successive years. The term of the Class III directors expires at the 2016 Annual Meeting of Stockholders. In 2015, Ms. Susan S. Kilsby was recommended for nomination to the Board by certain non-management directors and the chief executive officer and was appointed as a Class II member of the Board of Directors for a term continuing until the 2016 Annual Meeting of Stockholders. The Board proposes that the three nominees described below,has nominated Ms. Kilsby and Mr. Christopher J. Klein, each of whom is currently serving as a Class III director, be re-elected tofor re-election as Class III directors for a new term of three years expiring at the 20182019 Annual Meeting of Stockholders and until their successors are duly elected and qualified. Mr. Richard A. Goldstein, who currently serves as a Class II director, was not nominated for re-election and will retire from the Board immediately following the Annual Meeting of Stockholders. The Board did not re-nominate Mr. Goldstein consistent with the retirement age policy set out in the Company’s Corporate Governance Principles and has reduced the size of the Board from nine directors to eight directors, effective immediately following the Annual Meeting. Proxies cannot be voted for more than the number of nominees proposed for re-election.
Each of the nominees has consented to be named as a nominee and to serve as a director, if elected. If any of them should become unavailable to serve as a director (which is not now expected), the Board may designate a substitute nominee. In that case, the Proxy Committee will vote for the substitute nominee designated by the Board.
The names of the nominees and the current Class III and Class III directors, along with their present positions, their principal occupations and directorships held with other public corporations during the past five years, their ages and the year first elected as a director of the Company, are set forth below. Individual qualifications and experiences of our directors that contribute to the Board’s effectiveness as a whole are also described in the following paragraphs.
ITEM 1 – ELECTIONOF DIRECTORS (CONTINUED)
Name | Present positions and offices with the Company, principal occupations during the past five years and other directorships | Age | Year first elected director | |||||||
NOMINEES FOR DIRECTOR – CLASS I DIRECTORS – TERM EXPIRING 2018 | ||||||||||
Ann F. Hackett | President and Founder of Horizon Consulting Group, LLC, a strategic and human resource consulting firm, since 1996. Currently also a director of Capital One Financial Corporation. Formerly a director of Beam Inc. | 61 | 2011 | |||||||
Ms. Hackett founded a company that provides strategic, organizational and human resource consulting services to boards of directors and senior management teams. She brings this expertise and experience leading change initiatives, talent management and succession planning to the Board. She also has significant international experience as well as extensive board experience. | ||||||||||
John G. Morikis | President and Chief Operating Officer of The Sherwin-Williams Company, a manufacturer of paint and coating products, since 2006. | 51 | 2011 | |||||||
Mr. Morikis’ experience as a Chief Operating Officer and his 30 years of experience with The Sherwin-Williams Company, a global leader in the paint and coatings industry, brings to our Board the perspective of a leader who faces similar external economic issues that face our Company. | ||||||||||
Ronald V. Waters, III | Retired since May 2010; President and Chief Executive Officer of LoJack Corporation, a provider of tracking and recovery systems, from January 2009 through May 2010; President and Chief Operating Officer prior thereto. Currently also a director of HNI Corporation and Paylocity Holding Corporation. Formerly a director of LoJack Corporation, Fortune Brands, Inc. and Chiquita Brands International, Inc. | 62 | 2011 | |||||||
Mr. Waters has considerable executive leadership and financial management experience. He served as Chief Executive Officer and Chief Operating Officer at LoJack Corporation, a premier technology company, and as Chief Operating Officer and Chief Financial Officer at Wm. Wrigley Jr. Company, a leading confectionary manufacturing company. Mr. Waters also has extensive board experience. |
Name | Present positions and offices with the Company, principal occupations during the past five years and other directorships | Age | Year first elected director | |||||||
NOMINEES FOR DIRECTOR – CLASS II DIRECTORS – TERM EXPIRING 2019 | ||||||||||
Susan S. Kilsby | Retired since May 2014; Senior Advisor at Credit Suisse AG, an investment banking firm, from 2009 to May 2014; Managing Director of European Mergers and Acquisitions of Credit Suisse prior thereto. Currently also a director of Shire Plc, Keurig Green Mountain, Inc. and BBA Aviation PLC. Formerly a director of L’Occitane International S.A. and Coca-Cola HBC AG. | 57 | 2015 | |||||||
Ms. Kilsby has a distinguished global career in investment banking and brings extensive mergers and acquisitions and international business experience to the Board. She held a variety of senior positions with The First Boston Corporation, Bankers Trust and Barclays de Zoete Wedd. In addition to her experience at Credit Suisse, Ms. Kilsby has extensive board experience and currently serves as the non-executive Chair of Shire Plc. | ||||||||||
Christopher J. Klein | Chief Executive Officer of Fortune Brands Home & Security since January 2010. President and Chief Operating Officer prior thereto. | 52 | 2010 | |||||||
Mr. Klein’s leadership as Chief Executive Officer of the Company and his vast corporate strategy, business development and operational experience provide him with intimate knowledge of our operations and the challenges faced by the Company. Mr. Klein led the Company through the spin-off from Fortune Brands, Inc. in 2011. Prior to the Company’s spin-off, he held several leadership positions at Fortune Brands, Inc., helping to reshape the business through acquisitions and divestitures. Prior to joining Fortune Brands, Mr. Klein held key strategy and operating positions at Bank One Corporation and also served as a partner at McKinsey & Company, a global management consulting firm. |
The Board of Directors recommends that you vote FOR the election of each nominee named above.
ITEM 1 – ELECTIONOF DIRECTORS (CONTINUED)
Name | Present positions and offices with the Company, principal occupations during the past five years and other directorships | Age | Year first elected director | |||||||
CLASS II DIRECTORS – TERM EXPIRING 2016 | ||||||||||
Richard A. Goldstein | Retired since May 2006; Chairman and Chief Executive Officer of International Flavors & Fragrances Inc., a manufacturer of flavor and fragrance products, prior thereto. Currently also a director of The Interpublic Group of Companies, Inc. and Fiduciary Trust Company International. Formerly a director of Beam Inc. | 73 | 2011 | |||||||
Mr. Goldstein’s background as a lawyer and his 30 year background in the consumer packaged goods industry provides a unique perspective to the Board. In addition to serving as Chief Executive Officer of International Flavors & Fragrances Inc., he held various key executive positions at Unilever. Mr. Goldstein also has extensive board experience. | ||||||||||
Christopher J. Klein | Chief Executive Officer of Fortune Brands Home & Security since January 2010; President and Chief Operating Officer from April 2009 to December 2009; Senior Vice President of Fortune Brands, Inc. from February 2009 until April 2009; Senior Vice President – Strategy and Corporate Development of Fortune Brands, Inc. prior thereto. | 51 | 2010 | |||||||
Mr. Klein’s leadership as Chief Executive Officer of the Company and his vast corporate strategy, business development and operational experience provide him with intimate knowledge of our operations and the challenges faced by the Company. |
Name | Present positions and offices with the Company, principal occupations during the past five years and other directorships | Age | Year first elected director | |||||||
CLASS III DIRECTORS – TERM EXPIRING 2017 | ||||||||||
A.D. David Mackay | Retired since January 2011; President and Chief Executive Officer of Kellogg Company, a packaged foods manufacturer, prior thereto. Currently also a director of Keurig Green Mountain, Inc. and McGrath Limited. Formerly a director of Woolworths Limited, Beam Inc. and Kellogg Company. | 60 | 2011 | |||||||
Mr. Mackay held various key executive positions with Kellogg Company including Chief Executive Officer and Chief Operating Officer, bringing to our Board the perspective of a leader who faced a similar set of external economic, social and governance issues to those that face our Company. Mr. Mackay also has significant international business experience, as well as extensive board experience. | ||||||||||
David M. Thomas | Retired since March 2006; Chairman of the Board and Chief Executive Officer of IMS Health Incorporated, a provider of information services to the pharmaceutical and healthcare industries, prior thereto. Currently also a director of The Interpublic Group of Companies, Inc. and a member of the Fidelity Investments Board of Trustees. Formerly a director of Fortune Brands, Inc. | 66 | 2011 | |||||||
Mr. Thomas’ experience as a Chief Executive Officer of IMS Health Incorporated and his management experience at premier global technology companies, including IBM, helps the Board address the challenges the Company faces due to rapid changes in IT capabilities and communications and global distribution strategies. Mr. Thomas also has extensive board experience. | ||||||||||
Norman H. Wesley | Retired since October 2008; Chairman of the Board and Chief Executive Officer of Fortune Brands, Inc. prior thereto. Currently also a director of Acuity Brands, Inc. and Keurig Green Mountain, Inc. Formerly a director of ACCO Brands, Inc. and Fortune Brands, Inc. | 66 | 2011 | |||||||
Mr. Wesley’s experience as Chief Executive Officer of a consumer products conglomerate gives him unique insights into the Company’s challenges, opportunities and operations. Mr. Wesley also has extensive board experience. |
ITEM 1 – ELECTIONOF DIRECTORS (CONTINUED)
Name | Present positions and offices with the Company, principal occupations during the past five years and other directorships | Age | Year first elected director | |||||||
CLASS III DIRECTORS – TERM EXPIRING 2017 | ||||||||||
A.D. David Mackay | Retired since January 2011; President and Chief Executive Officer of Kellogg Company, a packaged foods manufacturer, prior thereto. Currently also a director of Keurig Green Mountain, Inc. and Woolworths Limited. Formerly a director of Kellogg Company and Beam Inc. | 59 | 2011 | |||||||
Mr. Mackay held various key executive positions with Kellogg Company including Chief Executive Officer and Chief Operating Officer, bringing to our Board the perspective of a leader who faced a similar set of external economic, social and governance issues to those that face our Company. Mr. Mackay also has significant international business experience, as well as extensive board experience. | ||||||||||
David M. Thomas | Retired since March 2006; Chairman of the Board and Chief Executive Officer of IMS Health Incorporated, a provider of information services to the pharmaceutical and healthcare industries, prior thereto. Currently also a director of The Interpublic Group of Companies, Inc. and a member of the Fidelity Investments Board of Trustees. Formerly a director of Fortune Brands, Inc. | 65 | 2011 | |||||||
Mr. Thomas’ experience as a Chief Executive Officer of IMS Health Incorporated and his management experience at premier global technology companies, including IBM, helps the Board address the challenges the Company faces due to rapid changes in IT capabilities and communications and global distribution strategies. Mr. Thomas also has extensive board experience. | ||||||||||
Norman H. Wesley | Retired since October 2008; Chairman of the Board of Fortune Brands, Inc. from January 2008 through September 2008; Chairman of the Board and Chief Executive Officer of Fortune Brands, Inc. prior thereto. Currently also a director of Acuity Brands, Inc. and Keurig Green Mountain, Inc. Formerly a director of ACCO Brands, Inc., Pactiv Corporation and Fortune Brands, Inc. | 65 | 2011 | |||||||
Mr. Wesley’s experience as Chief Executive Officer of a consumer products conglomerate gives him unique insights into the Company’s challenges, opportunities and operations. Mr. Wesley also has extensive board experience. |
Name | Present positions and offices with the Company, principal occupations during the past five years and other directorships | Age | Year first elected director | |||||||
CLASS I DIRECTORS – TERM EXPIRING 2018 | ||||||||||
Ann F. Hackett | Partner and co-founder of Personal Pathways, LLC, a company providing web-based enterprise collaboration platforms, since 2015. Prior to that, President of Horizon Consulting Group, LLC, a strategic and human resource consulting firm, founded by Ms. Hackett in 1996. Currently also a director of Capital One Financial Corporation. Formerly a director of Beam Inc. | 62 | 2011 | |||||||
Ms. Hackett has extensive experience in leading companies that provides strategic, organizational and human resource consulting services to boards of directors and senior management teams. She has experience leading change initiatives, risk management, talent management and succession planning and in creating performance based compensation programs. She also has significant international experience as well as extensive board experience. | ||||||||||
John G. Morikis | Chief Executive Officer of The Sherwin-Williams Company, a manufacturer of paint and coating products, since January 2016; President and Chief Operating Officer prior thereto. Currently a director of The Sherwin-Williams Company. | 52 | 2011 | |||||||
Mr. Morikis’ experience as a Chief Executive Officer and as a Chief Operating Officer of The Sherwin-Williams Company, and his more than 30 years of experience with a consumer home products company, brings to our Board the perspective of a leader who faces similar external economic issues that face our Company. | ||||||||||
Ronald V. Waters, III | Retired since May 2010; President and Chief Executive Officer of LoJack Corporation, a provider of tracking and recovery systems, prior thereto. Currently also a director of HNI Corporation and Paylocity Holding Corporation. Formerly a director of LoJack Corporation, Fortune Brands, Inc. and Chiquita Brands International, Inc. | 63 | 2011 | |||||||
Mr. Waters has considerable executive leadership and financial management experience. He served as Chief Executive Officer and Chief Operating Officer at LoJack Corporation, a premier technology company, and as Chief Operating Officer and Chief Financial Officer at Wm. Wrigley Jr. Company, a leading confectionary manufacturing company. Mr. Waters also has extensive board experience. |
Fortune Brands is committed to maintaining strong corporate governance practices that are good for our stockholders and our business. We are dedicated to maintaining these practices and upholding high standards of conduct.
Corporate Governance Principles
The Board adopted a set of Corporate Governance Principles which describe our corporate governance practices and address corporate governance issues such as Board composition and responsibilities, Board meeting procedures, the establishment of Board committees, management succession planning process and review of risks. The Corporate Governance Principles are available athttp://ir.fbhs.com/governance.cfmcorporate-governance.cfm.
The Company’s Corporate Governance Principles provide that a majority of the members of the Board shall be independent directors. New York Stock Exchange requirements, as well as the Company’s committee charters, require each member of the Audit, Compensation and Nominating and Corporate Governance Committees to be independent. The Board applies the definition of independence found in the New York Stock Exchange Listed Company Manual in determining which directors are independent. When determining each director’s independence, the Board also considered charitable contributions made by the Company to organizations with which each director is affiliated.
Applying that definition, Messrs. Goldstein, Mackay, Morikis, Thomas, Wesley and Waters and Ms.Mses. Hackett and Kilsby were affirmatively determined by the Board to be independent and all such charitable relationships were deemed immaterial. Due to Mr. Klein’s employment with the Company, he is not considered independent.
None of the non-employee directors has any material relationship with the Company other than being a director and stockholder. Also, none of the non-employee directors participated in any transaction or arrangement that interferes with such director’s independence.
Policies with Respect to Transactions with Related Persons
The Board has adopted a Code of Business Conduct and Ethics which sets forth various policies and procedures intended to promote the ethical behavior of all of the Company’s employees, officers and directors (the “Code of Conduct”). The Code of Conduct describes the Company’s policy on conflicts of interest. The Board has established a Compliance Committee (comprised of management) which is responsible for administering and monitoring compliance with the Code of Conduct. The Compliance Committee periodically reports on the Company’s compliance efforts to the Audit Committee and to the Board.
The Board has also established a Conflicts of Interest Committee (comprised of management) which is responsible for administering, interpreting and applying the Company’s policies with respect to conflicts of interest. The Conflicts of Interest Policy describes the types of relationships that may constitute a conflict of interest with the Company. TheUnder the Conflicts of Interest Policy, requires all directors and executive officers to reportare responsible for reporting any potential related person transaction (as defined in Item 404 of RegulationS-K) to the Conflicts of Interest Committee in advance of commencing a potential transaction. All employees and directors are required to periodically certify compliance with the Company’sThe Conflicts of Interest Policy.Committee will present to the Audit Committee any potential related party transaction. The Audit Committee will evaluate the transaction, determine whether the interest of the related person is material and approve or ratify, as the case may be, the transaction. In addition, the Company’s executive officers and directors annually complete a questionnaire on which they are required to disclose any related person transactions and potential conflicts of interest. The General Counsel reviews the responses to the questionnaires and, if a related person transaction is reported by a director or executive officer, submits the transaction for review by the Audit Committee. The Conflicts of Interest Committee also reviews potential conflicts of interest and reports findings involving any director or executive officer of the Company to the Nominating and Corporate Governance Committee (the “Nominating Committee”) and the Audit Committee.. The Nominating Committee will review any potential conflict of interest or related person transaction involving a member of the Board to determine whether such potential conflict or transaction would affect that director’s independence. The Conflicts
CORPORATE GOVERNANCE (CONTINUED)
of Interest Committee will also present any potential related person transaction involving a member of the Board or an executive officer of the Company to the Audit Committee to evaluate each related person transaction, determine whether the interest of the related person in the transaction is material and approve or ratify, as the case may be, the transaction. The Audit Committee may ratify any related person transactions that were not submitted in advance of the transaction.
Certain Relationships and Related Transactions
Since January 1, 2014,2015, the Company did not participate in any transactions in which any of its directors, executive officers, any immediate family member of a director or executive officer or any beneficial owner of more than 5% of the Company’s common stock had a direct or indirect material interest.
The Nominating Committee is responsible for, among other things, screening potential director candidates, recommending qualified candidates to the Board for nomination and assessing director independence.
When identifying director candidates, the Nominating Committee determines whether there are any evolving needs that require an expert in a particular field or other specific skills or experiences. When evaluating director candidates, the Nominating Committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, conflicts of interest, integrity, ethics and commitment to the goal of maximizing stockholder value. The Nominating Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. The Nominating Committee does not have a formal policy with respect to diversity; however, the Board and the Nominating Committee believe that it is essential that the Board members represent diverse viewpoints. In considering candidates for the Board, the Nominating Committee considers the entirety of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered. For the purpose of this Annual Meeting of Stockholders, the Nominating Committee recommended the nomination of each of the Company’s currentMs. Kilsby and Mr. Klein as Class III directors.
In connection with future director elections, or at any time there is a vacancy on the Board, the Nominating Committee may retain a third-party search firm to assist in locating qualified candidates that meet the needs of the Board at that time.
It is the Nominating Committee’s policy to consider director candidates recommended by stockholders, if such recommendations are properly submitted to the Company. Stockholders that wish to recommend an individual as a director candidate for consideration by the Nominating Committee can do so by writing to the Secretary of Fortune Brands Home & Security, Inc. at 520 Lake Cook Road, Deerfield, Illinois 60015. Recommendations must include the proposed nominee’s name, biographical data and qualifications, as well as other information that would be required if the stockholder were actually nominating the recommended candidate pursuant to the procedures for such nominations provided in our Bylaws. The Nominating Committee will consider the candidate and the candidate’s qualifications in the same manner in which it evaluates nominees identified by the Nominating Committee. The Nominating Committee may contact the stockholder making the nomination to discuss the qualifications of the candidate and the stockholder’s reasons for making the nomination. Members of the Nominating Committee may then interview the candidate if the committee deems the candidate to be appropriate. The Nominating Committee may use the services of a third-party search firm to provide additional information about the candidate prior to making a recommendation to the Board.
The Nominating Committee’s nomination process is designed to ensure that the Nominating Committee fulfills its responsibility to recommend candidates that are properly qualified to serve the Company for the benefit of all of its stockholders, consistent with the standards established under the Company’s Corporate Governance Principles.
CORPORATE GOVERNANCE (CONTINUED)
The Board and management encourage communication from the Company’s stockholders. Stockholders who wish to communicate with the Company’s management should direct their communication to the Chief Executive Officer or the Secretary of Fortune Brands Home & Security, Inc. at 520 Lake Cook Road, Deerfield,
CORPORATE GOVERNANCE (CONTINUED)
Illinois 60015. Stockholders, or other interested parties, who wish to communicate with the non-management directors or any individual director should direct their communication c/o the Secretary at the address above. The Secretary will forward communications intended for the Board to the Chairman of the Board, or, if intended for an individual director, to that director. If multiple communications are received on a similar topic, the Secretary may, in his or her discretion, forward only representative correspondence. Any communications that are abusive, in bad taste or present safety or security concerns may be handled differently.
Mr. Thomas serves as the Company’s non-executive, independent Chairman. The Board determined that having an independent director serve as Chairman of the Board is in the best interests of our stockholders at this time. This leadership structure aids the Board’s oversight of management and allows our Chief Executive Officer to focus primarily on his management responsibilities. The non-executive Chairman has the responsibility of presiding at all meetings of the Board, consulting with the Chief Executive Officer on Board and committee meeting agendas, acting as a liaison between management and the non-management directors, including maintaining frequent contact with the Chief Executive Officer and advising him or her on the efficiency of the Board meetings, facilitating teamwork and communication between the non-management directors and management, as well as additional responsibilities that are more fully described in the Company’s Corporate Governance Principles. In addition, the Company’s non-executive Chairman facilitates the Board’s annual performance assessment of the Chief Executive Officer.
The Board does not believe that a single leadership structure is right at all times, so the Board periodically reviews its leadership structure to determine, based on the circumstances at the time, whether other leadership structures might be appropriate for the Company. The Board has been and remains committed to maintaining strong corporate governance and appropriate independent oversight of management. Given that each of the members of the Board, other than Mr. Klein, is independent we believe that the leadership structure currently utilized by the Board provides effective independent Board leadership and oversight.
Pursuant to the Company’s Corporate Governance Principles, non-management directors of the Board are required to meet on a regularly scheduled basis without the presence of management. The non-executive Chairman of the Board leads these sessions.
The Board of Directors met sevensix times in 2014.2015. Each director attended at least 94%75% of the total meetings of the Board and committees of the Board of which the director was a member during 2014. In addition to participation at Board and committee meetings, our directors regularly engage in other communications throughout the year, including considerable telephone and email contact with the Chairman of the Board, the Chief Executive Officer and other members of management regarding matters of interest and concern to the Company.
2015. Pursuant to the Company’s Corporate Governance Principles, all directors are encouraged and expected to attend the Annual Meeting. In 2014,2015, all of the directors attended the Company’s annual meeting of stockholders.
CORPORATE GOVERNANCE (CONTINUED)
The responsibility for the day-to-day management of risks lies with the Company’s management team; however, the Board has an active role, as a whole and also at the committee level, in overseeing the strategy and process for managing the Company’s risks. The Board regularly reviews information regarding the Company’s business strategy, leadership development, resource allocation, succession planning, credit, liquidity and operations, as well as the risks associated with each. The Company’s overall risk management program consists of periodic management discussions analyzing and mitigating risks, an annual review of risks associated with each of the Company’s operating businesses and an annual review of risks related to the Company’s compensation programs and practices.
CORPORATE GOVERNANCE (CONTINUED)
Annually, management identifies both external risks (i.e., economic) and internal risks (i.e., strategic, operational, financial and compliance risks,compliance), assesses the impact of these risks and determines how to mitigate such risks. The Audit Committee manages the Company’s risk management program and reviews the results of the annual assessment. Management also provides the Audit Committee with quarterly updates on the Company’s risks. In addition, the Audit Committee oversees management of the Company’s financial risks.
The Company’s Compensation Committee is responsible for overseeing the management of risks relating to the compensation paid to the Company’s executives and the Company’s executive compensation plans and programs. Annually, the Compensation Committee’s independent compensation consultant conducts an assessment of the risks associated with the Company’s executive compensation practices and programs. The compensation consultant conducts a more extensive review of all of the Company’s broad-based compensation incentive arrangements every three years. For more information about that assessment see “Compensation Risks” below.
The Nominating Committee manages risks associated with the independence of the Board, potential conflicts of interest of Board members, and the Company’s corporate governance structure, as well as management of risks associated with the environment, health and safety, diversity, philanthropy, global citizenship and sustainability.
While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about all of the risks described above. The Board’s assignment of responsibility for the oversight of specific risks to its committees enables the entire Board, under the leadership of the non-executive Chairman and the Chief Executive Officer, to better monitor the risks of the Company and more effectively develop strategic direction, taking into account the various risks facing the Company, including the magnitude of such risks.
The Compensation Committee’s compensation consultant conducts an annual assessment of the risks associated with the compensation policies and practices used to compensate the Company’s executives and reports on the assessment to the Compensation Committee. In 2014,2015, the Compensation Committee, with assistance from its independent compensation consultant, reviewed the elements of executive compensation to determine whether any portion of executive compensation encouraged excessive risk taking and concluded that they do not. In general, the executive compensation arrangements are consistent with the structure and design of other companies of similar size and industry sector, and the following risk-mitigating design features have been incorporated into the Company’s programs:
The Company utilizes multiple long-term incentive vehicles with overlapping three-year performance cycles;
The Company uses multiple and diverse performance metrics in incentive plans;
The Company often uses individual objectives and other discretionary metrics in determining certain payouts;
CORPORATE GOVERNANCE (CONTINUED)
The upside on payout potential is capped for both short-term and long-term incentives;
The majority of an individual’s total compensation mix is not derived from a single component of compensation; and
The Company maintains stock ownership guidelines, a policy prohibiting hedging and pledging and a formal clawback policy.
As described in our Compensation Discussion and Analysis, compensation decisions are made using a combination of objective and subjective considerations designed to mitigate excessive risk taking by executives.
CORPORATE GOVERNANCE (CONTINUED)
The Board established an Audit Committee, a Compensation Committee, an Executive Committee and a Nominating and Corporate Governance Committee. A list of current Committee memberships may be found on the Company’s website athttp://ir.fbhs.com/committees.cfm. The Committee memberships as of the date of this Proxy Statement are set forth below:
Name | Audit | Compensation | Executive | Nominating and Corporate Governance | ||||
Richard A. | X | X | ||||||
Ann F. Hackett | C | X | X | |||||
Susan S. Kilsby | X | X | ||||||
Christopher J. Klein | X | |||||||
A. D. David Mackay | X | X | ||||||
John G. Morikis | X | X | ||||||
David M. Thomas | X | C | C | |||||
Ronald V. Waters, III | C | X | X | |||||
Norman H. Wesley | X | X |
An “X” indicates membership on the committee.
A “C” indicates that the director serves as the chair of the committee.
* | As of the date of this Proxy Statement, Mr. Goldstein serves as a Class II director and on the committees indicated in the chart. Mr. Goldstein was not nominated for re-election and will retire from the Board immediately following the 2016 Annual Meeting of Stockholders. |
The Audit Committee’s primary function is to assist the Board in overseeing the (i) integrity of the Company’s financial statements and the financial reporting process of the Company;process; (ii) Company’s compliance with legal and regulatory requirements; (iii) independence and qualifications of the Company’s external auditors; and (iv) performance of the Company’s external and internal auditors.
Each member of the Audit Committee (Messrs. Mackay, Morikis, Thomas, Waters and Wesley), is financially literate. Each of Messrs. Mackay, Thomas, Waters and Wesley has accounting or financial management expertise and is an audit committee financial expert as defined in Item 407(d)(5)(ii) and (iii) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As required by its charter, each Audit Committee member has also been determined by our Board to be independent as such term is defined in Rule 10A-3 under the Exchange Act and the New York Stock Exchange Listed Company Manual. The Audit Committee met eight times in 2014.2015.
The Compensation Committee’s primary functions are to (i) develop and critically review the Company’s executive pay philosophy and practices so that they are aligned with the Company’s business strategy; and (ii) set the compensation of the Company’s executive officers, which includes the presidents of the Company’s principal operating companies, in a manner that is consistent with competitive practices, individual and Company performance and the requirements of appropriate regulatory bodies.
As required by its charter, each member of the Compensation Committee (Messrs. Goldstein, Mackay, Morikis and Wesley and Ms. Hackett)Mses. Hackett and Kilsby) has been determined by our Board to be independent as such term is defined in the New York Stock Exchange Listed Company Manual and pursuant to SEC regulations. The Committee has created a special Subcommittee comprised of Ms.Mses. Hackett and Kilsby and Messrs. Goldstein, Mackay and Morikis that is
CORPORATE GOVERNANCE (CONTINUED)
responsible for approving all performance standards and payments for any pay program intended to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code (the “Code”). The Compensation Committee met sevensix times in 2014.2015.
CORPORATE GOVERNANCE (CONTINUED)
Compensation Committee Procedures
The Compensation Committee directs management to prepare financial data to be used by the Compensation Committee in determining executive compensation. In addition, members of the Company’s human resources department assist in the preparation of executive compensation tally sheets and historical information describing compensation paid to executives and the Compensation Committee’s independent consultant provides market data for use in determining executive compensation. The Compensation Committee is presented with recommendations from management and from the Committee’s independent compensation consultant as to the level and type of compensation to provide to the Company’s executive officers. Members of the Company’s legal department provide the Compensation Committee with general advice on laws applicable to executive compensation and the directors’ fiduciary duties in setting compensation.
The Chief Executive Officer attends meetings of the Compensation Committee. The Chief Executive Officer’s feedback about each officer’s performance is essential in the Compensation Committee’s determination of the officer’s salary and target incentive compensation determinations. See pages 1718 through 32 of this Proxy Statement for more information about how the Compensation Committee determined the executive officers’ compensation in 2014.2015.
Compensation Committee Consultant
The Compensation Committee engages an outside compensation consultant. Meridian Compensation Partners, LLC (“Meridian”) was retained directly by and reports directly to the Compensation Committee. In 2014,2015, Meridian provided the following services and information to the Compensation Committee:
Made recommendations as to best practices for structuring executive pay arrangements and executive compensation (including the amount and form of compensation) consistent with the Company’s business needs, pay philosophy, market trends and latest legal and regulatory considerations;
Provided market data (including compiling the Survey Group and related performance data) as background for decisions regarding Chief Executive Officer and executive officer compensation;
Performed an assessment of risks associated with the Company’s executive compensation structure and design; and
Attended six of the seven Compensation Committee meetings (including executive sessions without the presence of management) held during 2014 and summarized alternatives for compensation arrangements that may have been considered in formulating final recommendations, as well as the consultant’s rationale for supporting or opposing management’s proposals.
The Compensation Committee has authorized Meridian to interact with management in connection with advising the Compensation Committee. Meridian is included in discussions with management and, when applicable, the Compensation Committee’s outside legal counsel on matters being brought to the Compensation Committee for consideration. Meridian is prohibited from performing any services for management outside of services needed in connection with advising the Compensation Committee. The Compensation Committee has assessed Meridian’s independence and concluded that Meridian’s work for the Compensation Committee does not raise any conflict of interest.
CORPORATE GOVERNANCE (CONTINUED)
The Executive Committee did not meet in 2014.2015. The Executive Committee has all the authority of the full Board, except for specific powers that are required by law to be exercised by the full Board. The Executive Committee may not amend the Company’s charter, adopt an agreement of merger, recommend actions for stockholder approval, amend or repeal the Bylaws, elect or appoint any director or remove an officer or director, amend or repeal any resolutions of the Board, fix the Board’s compensation, and unless expressly authorized by the Board, declare a dividend, authorize the issuance of stock or adopt a certificate of ownership and merger.
Nominating and Corporate Governance Committee
The Nominating Committee’s primary functions are to (i) provide recommendations to the Board with respect to the organization and function of the Board and its committees; (ii) recruit, identify and recommend potential director candidates and nominees; (iii) develop a set of corporate governance principles; (iv) oversee the process of the evaluation of the Board and management; and (v) review and advise management on matters relating to the Company’s responsibilities to its employees and the community. The Nominating Committee also makes recommendations to the Board regarding the level and composition of compensation for non-employee directors.
As required by its charter, each member of the Nominating Committee (Messrs. Goldstein, Thomas and Waters and Ms. Hackett)Mses. Hackett and Kilsby) has been determined by our Board to be independent as such term is defined in the New York Stock Exchange Listed Company Manual. The Nominating Committee met four times in 2014.2015.
Other Corporate Governance Resources
The charters of each committee, the Company’s Corporate Governance Principles, the Company’s Code of Business Conduct and Ethics and the Company’s Code of Ethics for Senior Financial Officers are available on the Company’s website athttp://ir.fbhs.com/governance.cfmcorporate-governance.cfm.
The annual cash fee for services as a non-employee director of the Company is $80,000. The members of the Audit Committee (Messrs. Mackay, Morikis, Thomas, Waters and Wesley) and the Compensation Committee (Ms.(Mses. Hackett and Kilsby and Messrs. Goldstein, Mackay, Morikis and Wesley) receive an additional annual cash fee of $7,500 for their service on these committees. In addition, the chairperson of each of the Audit, Compensation and Nominating and Corporate Governance Committees receives an additional annual cash fee of $15,000 for such service (Messrs. Thomas and(Mr. Waters, and Ms. Hackett and Mr. Thomas, respectively). Mr. Thomas receives an additional annual cash fee of $200,000 for his service as non-executive Chairman of the Board.
Directors have the ability tomay elect to receive payment of their cash fees in Company common stock rather than cash. In 2014, Mr. Morikis elected to convert all of his cash fees to Company stock.
EachIn April 2015, each non-employee director receives(other than Ms. Kilsby) received an annual stock grant that iswas based on a set dollar value of $115,000. In 2014, theThe number of shares granted was determined by dividing the dollar value of the annual stock grant ($115,000) by the closing price of the Company’s common stock on the grant date ($39.46) into the dollar value ($115,000)45.62), rounded to the nearest share. Accordingly, 2,9142,521 shares of Company common stock were granted to each of the then-serving non-employee directors in April 2015. As Ms. Kilsby was elected a director in 2014.
July 2015, she did not receive a 2015 stock grant. Directors have the abilitymay elect to defer receipt of their annual stock awards until the January following the year in which the individual ceases actingserving as a director of the Company. In 2014, Ms. Hackett and Mr. Thomas elected to defer receipt of their annual stock award.
DirectorStockDirector Stock Ownership Guidelines
To further align the Board’s interests with those of stockholders, the Board established Stock Ownership Guidelines for non-employee directors. Directors are encouraged to own Company common stock with a fair market value currently equal to $240,000 (or three times their annual cash fee)fee, which is currently set at $80,000). The guidelines allow directors five years from the date of the director’s election to the Board to meet the guidelines. All of our directors, other than Ms. Kilsby, currently meet the Stock Ownership Guidelines. Ms. Kilsby has five years from the date of her election to the Board to meet the guidelines. For information onabout the beneficial ownership of the Company’s securities of the Companyheld by directors and executive officers, see “Certain Information Regarding Security Holdings” on pages 46 and 47.
Anti-Hedging and Anti-Pledging
The Company has a policy prohibiting directors (as well as senior management) from hedging the risk of owning Company common stock and from pledging or otherwise encumbering shares of Company common stock as collateral for indebtedness in any manner including, but not limited to, holding shares in a margin account.
DIRECTOR COMPENSATION (CONTINUED)
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Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($)(4) | Total ($) | |||||||||||||||||||||
Richard A. Goldstein | 87,500 | 115,000 | n/a | n/a | n/a | 3,380 | 205,880 | |||||||||||||||||||||
Ann F. Hackett | 102,500 | 115,000 | n/a | n/a | n/a | 6,577 | 224,077 | |||||||||||||||||||||
A.D. David Mackay | 95,000 | 115,000 | n/a | n/a | n/a | 1,122 | 211,122 | |||||||||||||||||||||
John G. Morikis | 95,000 | 115,000 | n/a | n/a | n/a | 5,332 | 215,332 | |||||||||||||||||||||
David M. Thomas | 302,500 | 115,000 | n/a | n/a | n/a | 7,006 | 424,506 | |||||||||||||||||||||
Ronald V. Waters, III | 102,500 | 115,000 | n/a | n/a | n/a | 1,077 | 218,577 | |||||||||||||||||||||
Norman H. Wesley | 95,000 | 115,000 | n/a | n/a | n/a | 7,006 | 217,006 |
| ||||||||||||||||||||||||||||
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($)(2) | Total ($) | |||||||||||||||||||||
Richard A. Goldstein | $ | 87,500 | $ | 115,000 | n/a | n/a | n/a | $ | 3,380 | $ | 205,880 | |||||||||||||||||
Ann F. Hackett | $ | 102,500 | $ | 115,000 | n/a | n/a | n/a | $ | 2,577 | $ | 220,077 | |||||||||||||||||
Susan S. Kilsby(3) | $ | 37,399 | n/a | n/a | n/a | n/a | $ | 259 | $ | 37,658 | ||||||||||||||||||
A.D. David Mackay | $ | 95,000 | $ | 115,000 | n/a | n/a | n/a | $ | 1,577 | $ | 211,577 | |||||||||||||||||
John G. Morikis(4) | $ | 95,000 | $ | 115,000 | n/a | n/a | n/a | $ | 5,844 | $ | 215,844 | |||||||||||||||||
David M. Thomas | $ | 302,500 | $ | 115,000 | n/a | n/a | n/a | $ | 7,506 | $ | 425,006 | |||||||||||||||||
Ronald V. Waters, III | $ | 102,500 | $ | 115,000 | n/a | n/a | n/a | $ | 6,577 | $ | 224,077 | |||||||||||||||||
Norman H. Wesley | $ | 95,000 | $ | 115,000 | n/a | n/a | n/a | $ | 2,506 | $ | 212,506 |
* Although Mr. Klein currently serves as a member of the Board, he does not receive any additional compensation for such service.
(1) |
The amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”). The grant date fair value was |
Included in this column are premiums paid for group life insurance coverage and the Company’s match on gifts paid by the director to charitable organizations, both of which are generally available to |
(3) | Ms. Kilsby was elected to the Board in July 2015 and received a pro-rata portion of her annual cash fees to reflect her months of service. |
(4) | Mr. Morikis elected to convert the cash fees he earned in 2015 to Company common stock pursuant to the Non-Employee Director Stock Election Program. |
This Compensation Discussion and Analysis* (“CD&A”) describes the Company’s executive compensation program and explains how the Compensation Committee made compensation decisions for the following Named Executive Officers (the “NEOs”) in 2014:2015:
Named Executive Officer | Position with the Company During | |
Christopher J. Klein | Chief Executive Officer, Fortune Brands | |
E. Lee Wyatt, Jr. | Senior Vice President and Chief Financial Officer, Fortune Brands | |
Nicholas I. Fink | Senior Vice President, Global Growth and Development, Fortune Brands | |
David B. Lingafelter | President, Moen Incorporated | |
David M. Randich | President, MasterBrand Cabinets, Inc. | |
Use of the term “Operating Company Presidents” throughout the CD&A specifically refers to the NEOs who served as operating company presidents of our businesses in 2014, namely, Messrs. Randich and Lingafelter, but does not refer to all of the Company’s operating company presidents.
This CD&A is divided into the following main sections:
an Executive Summary;
the Results of the 20142015 Say-on-Pay Vote;
a discussion of the Compensation Committee’s Philosophy and Process for Awarding NEO Compensation; and
a description of the Types and Amounts of NEO Compensation Awarded in 2014.2015.
Fortune Brands has a strong business model built on its structural competitive advantages, leadership positionsindustry-leading brands in attractive product categories, consumer driven innovation, operational excellence and strong capital structure. Fortune Brands demonstratedcontinued to demonstrate its ability to outperform the housing market for our products during 2014.2015. In addition, to outperforming the market, the Company was able to take steps to position itselfthat we believe positions us for even higher growth in the future. These steps included investing in capacity across several businesses and refining theour portfolio of businesses by purchasing SentrySafe,Norcraft cabinetry and selling Simonton Windows and moving the Waterloo tool storage businessbusiness. In 2015, the Company also seized the opportunity to discontinued operations as we undertook a strategic review ofsecure long-term financing by issuing $900 million in corporate bonds that business.enhanced the Company’s financial flexibility. We believe the Company’s 2015 performance demonstrates the strength of our businesses and the Company’s ability to deliver results by leveraging its structural competitive advantagesadvantages. We also believe we are positioned well to drivecontinue to outperform the market for our products and extend our record of profitable growth throughout the continued housing market recovery.
The Board believes that the Company’s 2015 results from continuing operations, as shown in the charts below, exhibit how Fortune Brands grew net sales, operating income and earnings per share in 2015 and generated strong operating leverage. The Company’s consistent cash flow and strong balance sheet coupled with its 2015 bond issuance strengthened the flexibility of the Company’s capital structure to drive incremental growth and shareholder value. The compensation earned by the NEOs in 2015 reflected the Company’s strong financial performance.
* | All data presented in this CD&A is from continuing operations and all references to EPS, ROIC, OI and RONTA are on a before charges/gains basis. See Appendix A of this Proxy Statement for definitions and a description of the methodology of these non-GAAP measures. |
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
2014 Compensation Highlights
Importantly, we believe that our compensation program helps drive performance. The vast majority of compensation awarded to NEOs is at risk, meaning the level of compensation is dependent upon Company performance. In 2014, 84% of Mr. Klein’s total target compensation was pay-at-risk and 73% (on average) of the remaining NEOs’ total target compensation was pay-at-risk. The amount of total target compensation at risk to each NEO was significantly more than the amount of base salary. Also, the majority of total target compensation awarded to each NEO was in the form of equity with multi-year vesting and performance conditions. Total target compensation refers to the sum of an NEO’s base salary, target annual incentive and target long-term incentives. The Compensation Committee has focused the Company’s compensation programs on the following:
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Equity-based compensation aligns executives’ interests with stockholders and drives performance. The Compensation Committee believes compensation in the form of equity further aligns executive interests with stockholders, drives performance and facilitates executive retention. A significant portion of total target compensation is awarded in the form of equity, strongly aligning management’s interests with those of stockholders. In 2014, total equity-based compensation made up 65% of Mr. Klein’s and 54% (on average) of the other NEOs’ total target compensation. Each NEO was awarded three types of equity in 2014, in the form of performance share awards (“PSAs”), stock options and restricted stock units (“RSUs”). PSAs are only earned when the Company achieves cumulative three-year Earnings Per Share (“EPS”) and Return on Invested Capital (“ROIC”) goals.
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Incentive compensation drives increasing profit and returns. The Compensation Committee continues to believe that focusing on EPS and ROIC as key metrics will result in increased profits and stronger stockholder returns. In 2014, the performance metrics that govern the payment of annual cash incentive compensation for Messrs. Klein, Wyatt and Biggart were weighted 75% EPS and 25% ROIC, while the weighting for the Operating Company Presidents was 75% Operating Income (“OI”) and 25% Return on Net Tangible Assets (“RONTA”) for each of their respective operating companies.
Base salary represents the smallest portion of total target compensation.In 2014, base salary represented 16% of Mr. Klein’s and 27% (on average) of the remaining NEO’s total target compensation.
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The Board believes that this approach to our compensation program, along with our leading market positions and structural competitive advantages, has allowed our Company to continue to outperform the housing market in the early stages of the housing market recovery.
2014 Financial Highlights
The Board believes that the Company’s 2014 results, from continuing operations, asgrowth percentages shown in the charts below, exhibit how Fortune Brands grew net sales, operating income and EPS in 2014, generated strong operating leverage and maintained a flexible capital structure with a strong balance sheet. The compensation paid toillustrations above represent the NEOs during 2014 reflected the Company’s strong 2014 financial performance.percentage of growth from 2013 through 2015.
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
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CAPITAL PERFORMANCE (in millions) | ||||||||||||
December 31, 2015 | December 31, 2014 | December 31, 2013 | ||||||||||
CASH | $ | 239 | $ | 192 | $ | 241 | ||||||
DEBT | $ | 1,172 | $ | 670 | $ | 356 | ||||||
DEBT-TO-CAPITAL | 32% | 23% | 12% | |||||||||
MARKET CAPITALIZATION (in billions) | $ | 8.9 | $ | 7.2 | $ | 7.6 |
The chart below reflects Fortune Brands’ consistently strong long-term stock price performance since October 4, 2011, the date when the Company became publicly-traded on the New York Stock Exchange.
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2011-2015 STOCK PRICE PERFORMANCE
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
CAPITAL PERFORMANCE (in millions) | ||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | October 3, 2011 | |||||
CASH | $192 | $241 | $336 | $77 | ||||
DEBT | $670 | $356 | $326 | $520 | ||||
DEBT-TO-CAPITAL | 23% | 12% | 12% | 20%(1) | ||||
MARKET CAPITALIZATION (in billions) | $7.2 | $7.6 | $4.8 | $1.9 |
The chart below reflects Fortune Brands’ consistently strong long-term stock price performance since Fortune Brands began trading on the New York Stock Exchange on October 4, 2011.
2011-2014 STOCK PRICE PERFORMANCE
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
20142015 Compensation ProgramHighlights
We use our compensation program to attract, motivate and retain the executives who lead our businesses.Company. The Compensation Committee has established programs and practices that are designed to pay-for-performancepay for performance and to align management’s interests with those of the Company’s stockholders. The Compensation Committee believesWe believe that it does thisour compensation program helps drive Company performance by providing a significant amount of compensation in the form of equity, and by utilizing both short-term and long-term incentives that are tied to Company performance. The compensation program is designedperformance, and by making efforts to appropriately balance fixed (base salary) and variable (cash(annual cash and equity incentives) compensation. The 2015 executive compensation as well as reward both short-term and long-term Company performance. Because a large portion of each NEO’s compensation is tied to Company performance, the compensation that is actually paid to NEOs will vary from the target compensation awardedprogram was guided by the Compensation Committeefollowing principles:
Equity-based compensation aligns executives’ interests with stockholders, drives performance and is at risk for each NEO.
As described above, incentive compensation drives increasing profit and returns andfacilitates retention of superior talent. We believe that equity-based compensation further aligns the executives’ interests with those of our stockholders. For Mr. Klein, equity-based compensation made up 66% of his total target compensation and for all other NEOs, equity-based compensation made up 54% (on average) of their total target compensation. In 2015, the Compensation Committee approved the following equity-based compensation:
Annual equity awards consisted of performance share awards (PSAs), restricted stock units (RSUs) and stock options.
PSAs will be paid in Company stock only if the performance goals set for the cumulative three-year performance period are met. In 2015, the goals were based on Earnings Per Share (EPS) (weighted 75%) and Return on Invested Capital (ROIC) (weighted 25%) for the period January 1, 2015 through December 31, 2017;
The RSUs granted in 2015 are time-vested awards that will be paid in Company stock, in three equal annual installments, assuming the NEO remains employed through each vesting date; and
Stock options allow the NEOs to purchase Company stock at the market price set on the grant date. The stock options granted in 2015 will vest in three equal annual installments, assuming the NEO remains employed through each vesting date, and expire in ten years.
Other equity awards granted in 2015 consisted of RSUs:
Mr. Randich was granted a retention award of 50,000 RSUs to recognize his increased responsibilities with the acquisition of Norcraft cabinetry and the importance of his retention; and
Mr. Fink was granted a sign-on equity award of 23,900 RSUs to induce him to join the Company and to recognize the value of lost equity compensation he forfeited by leaving his prior employer.
Incentive compensation drives increasing profits and returns. The Compensation Committee continues to believe that linking compensation to certain performance metrics results in increased profits and stronger returns, which supports improving stockholder returns. Below is a descriptionThe vast majority of the three types of equitycompensation awarded to NEOs is dependent upon Company performance. In 2015, the NEOsCompensation Committee set challenging performance goals in 2014:connection with the annual incentive awards and PSAs:
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For annual incentive awards, EPS and ROIC were metrics used for Messrs. Klein, Wyatt and Fink; Operating Income (OI) and Working Capital Efficiency (WCE) were metrics used for Mr. Randich; and OI and Return on Net Tangible Assets (RONTA) were metrics used for Mr. Lingafelter; and
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For three-year PSAs, EPS and ROIC were the metrics used for all NEOs.
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COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
Base salary represents the smallest portion of total target compensation.The Compensation Committee continuously makes efforts to appropriately balance fixed (base salary) and variable (annual cash and equity incentives) compensation to each NEO.
In 2015, base salary (fixed compensation) represented 15% and variable compensation (annual cash and equity incentives) represented 85% of Mr. Klein’s total target compensation; and
For the remaining NEOs, 2015 base salary represented 27% (on average) and variable compensation represented 73% of total target compensation.
The following chart summarizes total target compensation awarded to each NEO in 2014:2015:
Summary of 2014 NEO Target Compensation | ||||||||||||||||||||||||||||||||
Summary of 2015 NEO Target Compensation | Summary of 2015 NEO Target Compensation | |||||||||||||||||||||||||||||||
Named Executive Officer | 2014 Annual Base Salary(1) | 2014 Annual Incentive Target Value | 2014 Long- Term Incentive Award Target Value(2) | 2014 Total Target Compensation | 2015 Annual Base Salary(1) | 2015 Annual Incentive Target Value | 2015 Long- Term Incentive Award Target Value(2) | 2015 Total Target Compensation | ||||||||||||||||||||||||
Christopher J. Klein
| $1,030,000 | $1,236,000 | $4,150,000 | $6,416,000 | $1,060,000 | $1,325,000 | $4,615,000 | $7,000,000 | ||||||||||||||||||||||||
E. Lee Wyatt, Jr.
| $725,000 | $616,250 | $1,700,000 | $3,041,250 | $747,000 | $634,950 | $1,850,000 | $3,231,950 | ||||||||||||||||||||||||
David M. Randich
| $525,000 | $341,250 | $1,000,000 | $1,866,250 | $560,000 | $364,000 | $1,100,000 | $2,024,000 | ||||||||||||||||||||||||
Nicholas I. Fink
| $485,000 | $315,250 | $1,000,000 | $1,800,250 | ||||||||||||||||||||||||||||
David B. Lingafelter
| $490,000 | $318,500 | $900,000 | $1,708,500 | $500,000 | $325,000 | $920,000 | $1,745,000 | ||||||||||||||||||||||||
Robert K. Biggart
| $450,000 | $270,000 | $800,000 | $1,520,000 |
(1) | The amounts listed in this column reflect annual base salary effective March 1, |
(2) | Expressed as the aggregate grant date value of |
The Board believes that this approach to our compensation program, along with our leading market positions and structural competitive advantages, has allowed our Company to continue to outperform the market for our products in the continued housing market recovery.
RESULTS OF THE 20142015 SAY-ON-PAY VOTE
In 2014,2015, we sought an advisory vote from our stockholders on NEO compensation (commonly referred to as “Say-on-Pay”). More than 96% of the votes cast for the Say-on-Pay vote were in support of the Company’s executive compensation program. Even with this strong endorsement of the Company’s pay practices, the Compensation Committee believes that it is essential to regularly review the executive compensation program. In 2014,2015, the Compensation Committee concluded that the compensation program provides awards that it believes motivate our NEOs to maximize long-term stockholder value and encourage long-term retention. Accordingly, the Compensation Committee did not make any changes to the design of the Company’s executive compensation program in response to the 20142015 Say-on-Pay vote. However, in connection with its ongoing review of the Company’s executive compensation program, and to further strengthen our internal policies and practices, the Compensation Committee entered into amended severance agreements with eachadopted a holding requirement on 50% of stock received from vested RSUs and PSAs (net of shares withheld to pay for taxes) until the executives meet the Company’s executive officers, added a non-compete provision to all equity award grants and increased the stock ownership guidelines for the Chief Financial Officer from threeand adopted a deferred compensation plan which will allow participants to four times annual base salary. Fordefer a detailed descriptionportion of each of these changes, refer to the respective sections of this CD&A.
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
PHILOSOPHY AND PROCESS FOR AWARDING NEO COMPENSATION
Philosophy of the Executive Compensation Program
We strongly believe that executive compensation should be closely tied to Company performance. Our executive compensation programs are designed to reward NEOs for the achievement of both short-term and long-term strategic and operational goals that lead to the creation of long-term stockholder value, while at the same time avoid incentives that encourage unnecessary or excessive risk taking. To accomplish this, the Compensation Committee has designed an executive compensation program that it believes:
Creates and reinforces a pay-for-performance culture;
Aligns management’s interests with those of the Company’s stockholders;
Attracts, retains and motivates superior talent through competitive compensation;
Provides incentive compensation that promotes performance without encouraging excessive risk;risk taking; and
Recognizes the cyclical nature of our business.
Maintaining a Competitive Compensation Program
When setting annual NEO compensation, the Compensation Committee uses compensation data from a group of similarly sized peer companies to evaluate compensation arrangements against those of the Company (the “Survey Group”). On an annual basis,Annually, the Compensation Committee reviews and assesses the appropriateness of the Survey Group. During this annual assessment, theThe Compensation Committee made slightdid not make any modifications to the composition of the Survey Group to be used whenfor setting 20142015 compensation. The modifications made were based on information and suggestions provided by the Compensation Committee’s compensation consultant. The changes to the Survey Group for 2014 included the elimination of Cooper Industries plc due to the fact that it was acquired by Eaton Corp. and Watsco, Inc. because its business is more consistent with distribution rather than manufacturing. Based on the recommendation of the compensation consultant and revenue data, the Survey Group for 2014 also included the addition of Nortek, Inc., Owens Corning and RPM International Inc. As a result, in 2014 the Survey Group consisted of 19 consumer or housing product companies with a median 20132014 revenue of $4.1$4.15 billion and median 20132014 market capitalization for publicly-traded peers of $6.0$6.92 billion which aligns with the Company’s 20132014 revenue of $4.2$4.01 billion and 2014 market capitalization of $6.6$7.15 billion. The Company believes that it competes with these companies for executive talent. The 20142015 Survey Group consisted of the following companies:
Andersen Corporation | Leggett & Platt, Incorporated | Owens Corning | ||
Armstrong World Industries, Inc. | Lennox International Inc. | Pella Corporation | ||
A. O. Smith Corporation | Masco Corporation | RPM International Inc. | ||
Fastenal Company | Mohawk Industries, Inc. | Stanley Black & Decker, Inc. | ||
Jarden Corporation | Newell Rubbermaid Inc. | The Sherwin-Williams Company | ||
Kohler Co. | Nortek, Inc. | USG Corporation | ||
The Valspar Corporation |
The Compensation Committee compared the base salaries, target annual cash incentives, target total long-term incentives and total target compensation forof each of the Company’s NEOs to the Survey Group compensation data of the Survey Group. The comparison was made to help the Compensation Committee determine whether the Company’s compensation practices fell in line with competitive market data. Throughout the CD&A, the compensation data used by the Compensation Committee is referred to as “market data.”
The Compensation Committee believes that compensation decisions are complex and require a deliberate review of Company performance, peer compensation levels, experience of individual executives, and individual performance. In determining executive compensation, the Committee considers all forms of compensation and benefits, and uses appropriate tools – such as tally sheets and market data – to review the value delivered to each
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
executive throughby each component of compensation.compensation to each executive. Accordingly, the Compensation Committee may determine that with respect to any individual it is appropriate for total target compensation or any particular element of compensation
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
to meet, exceed or fall below the 50th percentile of the market data. The factors that might influence the amount of compensation awarded include market competition for a particular position, retention considerations, an individual’s performance, possession of a unique skill or knowledge set, proven leadership capabilities or other business experience, tenure with the Company and internal pay equity.
Evaluating NEO Performance
TheAt the end of each year, the Compensation Committee, in conjunction with the non-management members of the Board, conducts a formal evaluation of the Company’s Chief Executive Officer (the “CEO”) each year to analyze his performance against strategic, financial and operational goals established at the beginning of the year. The Compensation Committee then sets the CEO’s total target compensation for that year.compensation. The CEO reviews and evaluates each of the other NEOs relative to their performance against strategic, financial and operational goals established at the beginning of the year and then presents his evaluations to the Compensation Committee. The Compensation Committee evaluates the CEO’s recommendations and then independently sets each of the other NEO’s total target compensation for the year.compensation.
Maintaining Best Practices Regarding Executive Compensation
The Compensation Committee maintains policies and procedures for itself and for certain of the Company’s executives, including the NEOs, many of which it believes represent best practices in corporate governance.
What We Do | ||
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ü CEO = 6 CFO = 4 Other NEOs = 3 Executives are required to hold 50% of net shares from the vesting of PSAs and | ü | |
What We Don’t Do | ||
No Employment ContractsNEOs and other executive officers are employees “at will.” The Company does not have employment contracts with any of its NEOs or other executive officers. | No Hedging or PledgingDirectors, NEOs and other officers are prohibited from hedging, pledging or otherwise encumbering shares of the Company’s common stock, including holding shares in a margin account. | |
No Tax Gross UpsNEOs and other executive officers are not entitled to tax gross ups in the event of a change in control and related termination or for perquisites (other than relocation expenses). | No Backdating or Repricing of Stock OptionsStock options are never backdated or issued with below-market prices. Repricing of underwater stock options | |
No Excessive PerquisitesPerquisites are limited to the executive health program, which includes an annual physical, and other benefits generally available to employees, such as company product purchase programs. The CEO |
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
TYPES AND AMOUNTS OF NEO COMPENSATION AWARDED IN 20142015
Summary of ExecutiveCompensation Elements
The Company provided both fixed (base salary) and variable (cash(annual cash and equity incentives) compensation to the NEOs in 2014.2015. The vast majority of compensation awarded to the NEOs in 2014 is at risk to the executiveeach NEO because the compensation that is actually paid may vary from the target compensation that was awarded by the Compensation Committee and the payment is dependent upon Company (or individual operating company) performance. The amount of total target compensation at risk was significantly more than the amount of base salary.salary for each NEO. Also, the majority of total target compensation awarded in 20142015 to each NEO was in the form of equity. The following charts show each element of 20142015 target NEO compensation, including the mix of short-term and long-term incentives, as well as the amount of pay-at-risk for the CEO and for the other NEOs (on average):
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
The following chart summarizes the material elements of the Company’s 20142015 executive compensation program. Further details regarding each of the elements are provided in the discussion that follows the chart.
Executive Compensation Program
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Element
| Key Characteristics
| Why We Pay This
| How We Determine
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Fixed | Base Salary | Fixed | Starts with market
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Pay-At-Risk | Annual Incentive Awards (Bonus) | Variable Percentage of base salary | The target percentage of base salary is determined based on job scope, market data and internal pay equity.
Actual payouts |
OI and RONTA performance goals resulted in a
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Performance Share Awards (PSAs) | Equity compensation. Number of shares paid Value of PSAs is variable based on long-term stock price growth. |
To align management’s interest with Long-term
| Based on job scope, market data and individual performance.
Actual payouts | One-third of the value of the total equity award was granted in the form of PSAs.
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Stock Options | Equity compensation. Time-vested over three years (assuming continued employment) Value of stock options is variable based on long-term stock price growth. Expire in ten years. |
Long-term incentives | Based on job scope, market data and individual performance. | One-third of the value of the total equity award was granted in the form of stock options. | ||||||
Restricted Stock Units (RSUs) | Equity compensation. Time-vested Value of RSUs is variable based on long-term stock price growth. |
Long-term incentives
| Based on job scope, market data and individual performance. | One-third of the value of the total equity award was granted in the form of RSUs. Retention award granted to Mr. Randich, which vests over four years. New hire RSU award granted to Mr. Fink. |
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
Compensation Provided to NEOs in 20142015
Base Salary
In setting 2015 base salary levels, the Compensation Committee (together with Mr. Klein for the NEOs other than himself) considered competitive market data market competition for a particular position, retention concerns,and the individual performance possession of a unique skill or knowledge set, proven leadership capabilities or other business experience, internal pay equity and tenure with the Company.each NEO. In 2014,2015, each of the NEOs other than Mr. Biggart,Fink, received an annual base salary increase ranging from 2.1% -14.1%2%–6.7%. Mr. Randich received a 14.1%6.7% increase in his base salary in recognition of his performance in 2013,2015 and his value to the Company and to bring his base salary in line with the significantly larger size of the business that he now runs.Company. Mr. BiggartFink was hired by the Company in December 2013June 2015 and his initial base salary level was determined at the time of his hire based on market data.
NEO Base Salary | NEO Base Salary | NEO Base Salary | ||||||||||||||||||||||
Named Executive Officer | 2014 | 2013 | % Increase | 2015 | 2014 | % Increase | ||||||||||||||||||
Christopher J. Klein | $1,030,000 | $1,000,000 | 3.0% | $1,060,000 | $1,030,000 | 2.9% | ||||||||||||||||||
E. Lee Wyatt, Jr. | $725,000 | $686,000 | 5.7% | $747,000 | $725,000 | 3.0% | ||||||||||||||||||
David M. Randich | $525,000 | $460,000 | 14.1% | $560,000 | $525,000 | 6.7% | ||||||||||||||||||
Nicholas I. Fink | $485,000 | n/a | n/a | |||||||||||||||||||||
David B. Lingafelter | $490,000 | $480,000 | 2.1% | $500,000 | $490,000 | 2.0% | ||||||||||||||||||
Robert K. Biggart | $450,000 | $450,000 | 0% |
Annual Cash Incentive
The Compensation Committee believes that annual cash incentive awards reinforce a pay-for-performance culture because the payment is based on the Company’s financial results. Annually, the Compensation Committee sets the percentage of base salary used to determine theeach NEO’s cash incentive, as well as performance goals for the Company and each Operating Company.operating company.
In setting2015, the Compensation Committee increased the percentage of base salary used to determine each NEO’s targetMr. Klein’s annual cash incentive award thefrom 120% to 125% in recognition of his performance. The Compensation Committee (together with Mr. Kleindid not make any other increases in the percentages used to determine the annual cash awards for the NEOs other NEOs. For Mr. Fink the percentage of base salary was determined based upon job scope and market data. The Compensation Committee determined that for Mr. Fink, the full amount of his annual incentive award will be paid, based on actual performance, rather than himself) considered competitive market data, market competitiona pro-rata portion beginning from his June 2015 start date. The purpose of this treatment was to induce Mr. Fink to join the Company and to make him whole for a particular position and internal pay equity.compensation that he forfeited by leaving his prior employer. The Compensation Committee believes that the percentage of base salary levels were competitive compared to the market data. The percentage of base salary for each NEO in 20142015 was:
Named Executive Officer | Percentage of | |
Christopher J. Klein | ||
E. Lee Wyatt, Jr. | 85% | |
David M. Randich | 65% | |
Nicholas I. Fink | 65% | |
David B. Lingafelter | 65% | |
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In 2014,2015, the Compensation Committee set minimum, target and maximum annual performance goals used to determine each NEO’s annual cash incentive award. For officers of the Company,Messrs. Klein, Wyatt and Fink, the goals were based on Fortune Brands’ EPS (weighted 75%) and ROIC (weighted 25%) and, for Operating Company Presidents,Mr. Randich, the goals were based on OI (weighted 75%) and WCE (weighted 25%) and for Mr. Lingafelter, the goals were based on Moen’s OI (weighted 75%) and RONTA (weighted 25%). Mr. Randich’s annual incentive award metrics were changed from MasterBrand Cabinets’ OI and RONTA in 2014 to OI and WCE in 2015. Due to investments made in 2014 and planned for 2015 in MasterBrand Cabinets’ capacity, the Committee believed that basing the awards of their respective operating companies.MasterBrand Cabinets’ employees, including Mr. Randich, on OI and WCE would reflect the importance of capital efficiency, cost reduction and inventory control of MasterBrand Cabinets as the housing market continues to recover. The Compensation Committee believes that these metrics focus executives on maximizing long-term stockholder value (EPS),
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
operational efficiency (ROIC, WCE and RONTA) and profitability (OI). Under the annual incentive program, the actual annual incentive payouts can range from 0% to 200%, based on the achievement of performance goals.
The performance goals set at the minimum, targetbeginning of the year and maximum payout levels, were intendedcan range from 0% to be challenging and required superior performance. 200%.
To establish challenging performance goals under the annual incentive program, the Compensation Committee reviewed the target performance goals and actual results for awards paid in 20132014 and considered the 20142015 expected growth rate in the home products market as well as key assumptions relating to share gains, pricing, material inflation and productivity. Based on this review,The performance goals, at the Compensation Committee increased the EPSminimum, target and ROIC goals for officers of the Company from $1.18maximum payout levels, were intended to be challenging and 8.2% in
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
2013 to $1.96 and 11.7% in 2014. For MasterBrand Cabinets, OI and RONTA were increased from $62.5 million and 19% in 2013 to $188.6 million and 46.2% in 2014. For Moen, OI and RONTA were increased from $209.3 million and 95.1% in 2013 to $279.1 million and 100.5% in 2014.
The Committee certified a payout level of 70.0% for Messrs. Klein, Wyatt and Biggart. Based on their respective operating company’s actual results, the Committee certified a payout level of 14.6% for Mr. Randich and 91.1% for Mr. Lingafelter. The following table sets forth the target performance measures, the actual performance results, the percentage payout and the amounts paid to each NEO for the 20142015 annual cash incentive awards:
2014 Annual Cash Incentive Performance Goals and Results | ||||||||||||||||||||||||||||||||||||
2015 Annual Cash Incentive Performance Goals and Results | 2015 Annual Cash Incentive Performance Goals and Results | |||||||||||||||||||||||||||||||||||
Performance Measures and Goals | Results and Award | Performance Measures and Goals(1) | Results and Award | |||||||||||||||||||||||||||||||||
Named Executive Officer | Performance | Target ($ in millions) | Actual | % of Payout(2) | Amount | Performance | Target | Actual | % of Payout | Amount | ||||||||||||||||||||||||||
Christopher J. Klein | EPS | td.96 | td.76 | 70.0 | % | $865,200 | EPS | td.03 | td.11 | 105.1 | % | $ | 1,392,575 | |||||||||||||||||||||||
ROIC | 11.7% | 10.5% | ROIC | 11.8% | 11.5% | |||||||||||||||||||||||||||||||
E. Lee Wyatt, Jr. | EPS | td.96 | td.76 | 70.0 | % | $431,375 | EPS | td.03 | td.11 | 105.1 | % | $667,333 | ||||||||||||||||||||||||
ROIC | 11.7% | 10.5% | ROIC | 11.8% | 11.5% | |||||||||||||||||||||||||||||||
David M. Randich | OI | td88.6 | td39.4 | 14.6 | % | $49,823 | OI | td85.0 | td95.0 | 131.7 | % | $ | 479,388 | |||||||||||||||||||||||
RONTA | 46.2% | 34.8% | WCE | 12.6% | 12.0% | |||||||||||||||||||||||||||||||
Nicholas I. Fink | EPS | td.03 | td.11 | 105.1 | % | $ | 331,328 | |||||||||||||||||||||||||||||
ROIC | 11.8% | 11.5% | ||||||||||||||||||||||||||||||||||
David B. Lingafelter | OI | td79.1 | td65.5 | 91.1 | % | td90,154 | OI | td86.5 | td99.6 | 125.3 | % | $ | 407,225 | |||||||||||||||||||||||
RONTA | 100.5% | 102% | RONTA | 93.7% | 104.0% | |||||||||||||||||||||||||||||||
Robert K. Biggart | EPS | td.96 | td.76 | 70.0 | % | td89,000 | ||||||||||||||||||||||||||||||
ROIC | 11.7% | 10.5% |
(1) | OI target performance measures and actual performance results are shown in millions. |
Long-Term Incentive Awards
The Compensation Committee believes that equity awards both align management’s interests with those of stockholders and reinforce a pay-for-performance culture. The 20142015 target equity-based compensation represented 65%66% of Mr. Klein’s and 54% (on average) of the other NEOs’ total target compensation.
In setting 2015 long-term incentive awards, the Compensation Committee (together with Mr. Klein for NEOs other than himself) considered competitive market data job scope and the individual performance.performance of each of the NEOs. In 2014, the Compensation Committee awarded a2015, Messrs. Klein’s, Wyatt’s, Randich’s and Lingafelter’s target long-term incentive award values were increased by 11%, 8.8%, 10% and 2.2%, respectively. The target long-term incentive award value to each of the NEOs, to be comprised equally of three types of equity awards (PSAs, stock options and RSUs) under the Fortune Brands Home & Security, Inc. 2013 Long Term Incentive Plan (the “LTIP”). In 2014, the target long-term incentive award values for each NEO, other than Mr. Biggart, were increased. Mr. Klein received a 13.7% increase in his target long-term incentive award to further align his long-term incentive award with market data and in recognition of his performance in 2013. Mr. Randich received an 11.1% increase in his target long-term incentive award to bring his target equity in line with the significantly larger size of the business that he now runs and in recognition of his performance in 2013. The aggregate grant date value of each NEO’s 20142015 equity-based awards was as follows and was comprised equally of PSAs (with the PSAs valued assuming achievement of the target performance level):, RSUs and stock options:
Named Executive Officer | Value of Equity Award | |||
Christopher J. Klein | $ | |||
E. Lee Wyatt, Jr. | $ | |||
David M. Randich | $1,100,000 | |||
Nicholas I. Fink | $1,000,000 | |||
David B. Lingafelter | $ | |||
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COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
Performance Share Awards – 2014 GrantAwards:
One-thirdIn 2015, one-third of the total target long-term incentive award value granted to the NEOs in 2014 was made in the form of PSAs. The PSAs awarded in 2014 will be paid to the NEOssettled in shares of the Company’s common stock only if the Company achieves specified EPS (weighted 75%) and ROIC (weighted 25%) goals during the cumulative performance period from January 1, 20142015 through December 31, 2016.2017, with vesting ranging from 0% to 200% of the target award based on performance. No shares will be paid unless the minimum established performance goals are achieved. Payouts for PSAs awarded in 2014,achieved and payout, if any, will not occur until early in 2017,2018, following completion of the performance period and certification of the performance results by the Compensation Committee’s certification ofCommittee.
The EPS and ROIC goals were intended to be challenging and require superior performance results.at the minimum, target and maximum payout levels. The Compensation Committee believes that awarding PSAs with a cumulative three-year performance goal drives long-term sustained growth and, as a result, management is only rewarded if the long-term growth goals are met or exceeded. The value of PSAs awarded is at risk to the NEOs because the PSAs only vest if the long-term growth goals are met or exceeded.
The EPS and ROIC goals were intended to be challenging and require superior performance at the minimum, target and maximum payout levels. In establishing performance goals for PSAs, the Compensation Committee considered the Company’s strategic operating plan, the expected 3-year compound market growth rate, as well as key assumptions relating to share gains, pricing, material inflation and productivity. The Compensation Committee based the performance goals on EPS and ROIC because it believes that the combined use of these metrics reflect sustainable growth and stronger returns. Although the combined use of EPS and ROIC goals are used for both the annual cash incentive award and PSAs awarded to Messrs. Klein, Wyatt and Biggart,Fink, the Compensation Committee believes this is appropriate because the annual incentive employs a one-year goal, while the PSAs focus on cumulative performance over three years. The Compensation Committee also believes that use of these goals for PSAs provides a strong incentive for sustained results over the long-term.
The number of shares paid is determined by multiplying the target number of PSAs awarded by the percentage of achievement of the combined, weighted performance goals, as follows:
Percentage of PSAs Paid Based on the % of EPS and ROIC Goals Achieved | ||||||||
Average ROIC | ||||||||
Minimum | Target | Maximum | ||||||
Cumulative EPS | Minimum | 0% | 25% | 50% | ||||
Target | 75% | 100% | 125% | |||||
Maximum | 150% | 175% | 200% |
RSUs and Stock Options:One-third of the total target long-term incentive award value granted to the NEOs in 20142015 was made in the form of RSUs and one-third was made in the form of stock options. StockThe Compensation Committee believes that both RSUs and stock options grantedfurther focus management on increasing stockholder returns and align the interests of management with stockholders.
RSUs awarded in 20142015 vest in three equal annual installments, assuming the NEO remains employed through each annual vesting date. The Compensation Committee believes that stock options further focus management on increasing stockholder returns and align the interests of management with stockholders. The Compensation Committee also believes that stock options are performance-based because the value of stock options grows when the Company’s long-term stock price increases. The value of stock options is at risk to the NEOs as they only realize a value if the Company’s stock price increases after the grant date.
RSUs:One-third of the total target long-term incentive award value granted to the NEOs in 2014 was made in the form of RSUs. The RSUs awarded in 2014 vest in three equal annual installments, assuming the NEO remains employed through each annual vesting date. The Compensation Committee believes that RSUs further focus management on increasing stockholder returns and align the interests of management with stockholders. RSUs also serve as a long-term retention device in a cyclical business, as an executive must remain employed with the Company through each of the three annual vesting dates to receive all of the shares. The Compensation Committee also believes that RSUs are performance-based because the value of RSUs grows when the Company’s long-term stock price increases and is at risk to the NEOs as the value of the RSUs will fluctuate based on the Company’s stock price.
Stock options granted in 2015 vest in three equal annual installments, assuming the NEO remains employed through each annual vesting date, and expire ten years from the date of grant. The Compensation Committee also believes that stock options are performance-based because the value of stock options grows when the Company’s long-term stock price increases. The value of stock options is at risk to the NEOs as they only realize a value if the Company’s stock price increases after the grant date.
Other Equity Awards Granted in 2015
In April 2015, the Compensation Committee granted a retention RSU award to Mr. Randich in the amount of $2,269,250 (50,000 RSUs) in recognition of his increased job scope and responsibilities in running a larger business in light of the Norcraft acquisition and in consideration of the importance of retaining him. The Compensation Committee believes that this equity award will serve as a long-term retention device as Mr. Randich must remain employed with the Company through each of the vesting dates to receive all of the shares awarded to him. For this award, the Compensation Committee approved a four-year vesting schedule rather than the three-year vesting schedule used for the Company’s annual grants. Accordingly, fifty percent (50%) of the award will vest in April 2017 (on the 2nd anniversary of the grant), twenty-five percent (25%) will vest in April 2018 (the 3rd anniversary of the grant) and the remaining twenty-five (25%) percent will vest in April 2019 (the 4th anniversary of the grant).
In July 2015, the Compensation Committee granted a one-time new hire RSU award to Mr. Fink in the amount of $1,100,000 (23,900 RSUs). The Compensation Committee made this award to induce Mr. Fink to join the Company and to make him whole for the loss of equity he forfeited by leaving his prior employer.
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
2013-2015 Performance Share Awards – 2012-2014 Payout
In 2012,2013, the Compensation Committee awarded all of the then-serving NEOs except for Mr. Biggart, PSAs to be paid in 20152016 if the Company achieved certain EPS and ROIC goals during the cumulative performance period from January 1, 20122013 through December 31, 2014,2015, with EPS weighted 75% and ROIC weighted 25%. The Company’s actual results exceeded the maximum performance goals, but due to the maximum cap on the payout of incentives under the program, the Committee certified a payout level of 200%. The target goals for cumulative EPS and average ROIC from January 1, 20122013 through December 31, 20142015 and the Company’s actual results were as follows:
2012-2014 PSA Target EPS and ROIC Goals and Results | ||||||||||||
2013-2015 PSA Target EPS and ROIC Goals and Results | 2013-2015 PSA Target EPS and ROIC Goals and Results | |||||||||||
Metric | Target | Actual Performance | % of Payout | Target | Actual Performance | % of Payout | ||||||
EPS (75%) | td.40 | $4.11 | 200% | $3.94 | $5.18 | 200% | ||||||
ROIC (25%) | 5.5% | 8.9% | 8.5% | 10.3% |
Based on the achievement of the 2012-20142013-2015 EPS and ROIC performance goals, the NEOs received the following number of shares of Company common stock pursuant to the terms of the award agreements:
Named Executive Officer | Shares Granted | |||
Christopher J. Klein | ||||
E. Lee Wyatt, Jr. | ||||
David M. Randich | ||||
David B. Lingafelter |
Retirement Benefits
All of the NEOs are eligible for retirement benefits through the Fortune Brands Home & Security Retirement Savings Plan (the “Savings Plan”), a tax-qualified defined contribution 401(k) plan. Only Messrs. Klein and Lingafelter are eligible for retirement benefits through a tax-qualified defined benefit pension plan. Due to their respective hire and/or transfer dates, Messrs. Wyatt, Randich and BiggartFink are not eligible to participate in any of the Company’s tax-qualified defined benefit plans sponsored by the Company or its operating companies.plans. In addition to its tax-qualified plans, the Company and each operating company provides non-qualified supplemental retirement benefits for accruals or contributions that would have been made under the tax-qualified plans but for limitations imposed by the Code.
The Compensation Committee believes that these types of retirement plans are consistent with competitive pay practices, and are an important element in attracting and retaining talent in a competitive market. Please see the narratives that follow the “2014“2015 Pension Benefits” table and the “2014 Nonqualified Deferred Compensation” table on pagespage 37 to 39 of this Proxy Statement for further information regarding these retirement plans.
Severance Agreements
In 2014, the Compensation Committee amended and restated the form AgreementThe Company has Agreements for the Payment of Benefits Following Termination of Employment (the “Agreements”“Severance Agreements”) and entered into new Agreements with each NEO. TheUnder the terms of the Severance Agreements, were not materially amended and provide foreach NEO is entitled to severance benefits followingupon a qualifying termination of employment.employment (i.e., termination by the Company without “cause” or by the NEO for “good reason”). The Compensation Committee believes that these Severance Agreements help accomplish the Company’s compensation objectives of attracting and retaining superior talent. The Compensation Committee also believes that it is appropriate to provide executives with the protections afforded by these Severance Agreements and that these Severance Agreements promote management independence and help retain and focus the attention of executive officers on the business in the event of a change in control.
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
All of the Agreements contain “double-trigger” change in control provisions, which means that there must be both a change in control of the Company (or applicable operating company) and a qualifying termination of employment (i.e., termination by the Company without “cause” or by the NEO for “good reason”) before any change in controlenhanced benefits can be paid.paid following a change in control. The NEOs are not entitled to tax gross ups in the event that their change in control benefits are subject to the “golden parachute” excise tax under the Code. Please see the “Potential Payments Upon Termination or Change in Control” table, as well as the narratives that follow for further information regarding the Company’sSeverance Agreements and the treatment of outstanding equity upon a qualifying termination of employment or a change in control on pages 40 to 42.
Perquisites
The Company provides a limited number of perquisites. The Compensation Committee authorized limited annual use of Company aircraft by Mr. Klein.Messrs. Klein and Wyatt. In 2014,2015, Mr. Klein and Mr. Wyatt reimbursed the Company for any personal use of Company aircraft, equivalent in amount to the cost of a first class ticket for each passenger on these flights. The Company’s executive health program makes annual medical examinations available to certain executives, including each of the NEOs, because the health of the NEOs is important to the Company. The Company also provides broad-based plans which are generally available to employees such as reimbursement of certain relocation expenses incurred when the Company requires an employee to relocate, a match on charitable contributions and company product purchase programs.
Clawback Policy
The Company has a policy that allows it to recoup all or part of annual cash incentives or PSAs if there is a: (1) significant or material restatement of the Company’s financial statements covering any of the three fiscal years preceding the grant or payment, or (2) restatement of the Company’s financial statements for any such year which results from fraud or willful misconduct committed by an award holder. The Company also includes the right to recoup all or part of an executives’executive’s other equity awards in the terms and conditions of the awards.
Stock Ownership Guidelines
The Company maintains the following stock ownership guidelines for directors, NEOs and other officers, which requires them to hold a number of shares equal to a multiple of their annual retainer or base salary, as applicable.salary. The ownership guidelines are as follows:
Position | Stock Ownership Level as a Multiple of | |||
| ||||
| 6 | |||
| 4 | |||
Operating Company Presidents | 3 | |||
| 3 | |||
| 1 |
In 2014, the Compensation Committee increased the ownership requirement for the Company’s Chief Financial Officer from a multiple of 3 to a multiple of 4 times base salary. Directors and officersExecutives have five years from the date of election (if a director), date of hire or date of promotion to acquire the requisite amount of stock. All of the NEOs currently satisfy the stock ownership guidelines, except for Mr. Biggart,Fink, who was recently hired and is expected to satisfy the guidelines within the five-year period specified in the policy.
In 2015, the Compensation Committee amended the policy to require executives to hold 50% of net shares acquired from the vesting of PSAs or RSUs until the ownership guidelines are met.
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement and the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.2015.
Compensation Committee
Ann F. Hackett, Chair
Richard A. Goldstein
Susan S. Kilsby
A. D. David Mackay
John G. Morikis
Norman H. Wesley
* | Mr. |
(1) | Stock Awards:The amounts listed in column D for |
For assumptions used in determining |
(2) | Option Awards:The amounts listed in column E for |
(3) | Non-Equity Incentive Plans:Column F lists amounts earned as annual cash |
(4) | Increase in Actuarial Value of Pension Benefits:Column G includes the increase in actuarial value of certain NEOs’ tax-qualified and non-qualified defined benefit pension plan benefits. |
(5) | Perquisites and All Other Compensation:The amounts in column H include the following: |
(a) | Matching Contributions to the Savings Plan. Matching contributions for |
(b) | Profit Sharing Contributions to the Savings Plan. Profit sharing contributions for |
(c) | Profit Sharing Contributions to the FBHS Supplemental Plan.The following contributions were made to the Fortune Brands Home & Security, Inc. Supplemental Plan (the “FBHS Supplemental Plan”) for |
2014 EXECUTIVE COMPENSATION (CONTINUED)
(d) | Premiums for Life Insurance and Executive Disability:The amounts set forth in column H include the dollar value of all life insurance premiums paid by the applicable employer in |
2015 EXECUTIVE COMPENSATION (CONTINUED)
(e) | Other:In |
In 2014,2015, limited use of the Company’s aircraft was provided to Mr.Messrs. Klein and Wyatt, who each reimbursed the Company for histheir personal use in an amount equivalent to the cost of a first class ticket for each passenger on these flights. The calculation of incremental cost of personal aircraft usage is based on variable costs to the Company, including fuel costs, crew expenses, landing fees and other miscellaneous variable costs. In 2014,2015, the Company’s incremental cost for personal use of Company aircraft not reimbursed by Mr. Klein was $45,112,$110,599 and by Mr. Wyatt was $3,753, which amount isamounts are reflected in column H.
Certain executives receivedAlso included in column H for each NEO are costs associated with the Company’s executive physicals. In 2014,health program. For Mr. Wyatt, the amount of the Company’s match on gifts paid by him to a charitable organization is included in column H. For Mr. Randich, column H includes the amount of a credit received reimbursement forfrom the purchase of company product provided through the employee purchase planproducts in the amount of $5,000.$4,450.
(1) |
(2) | Amounts in this row reflect the range of potential payments under the Fortune Brands Home & Security, Inc. Annual Executive Incentive Compensation Plan. The target payout for Messrs. Klein, Wyatt, Randich, |
20142015 EXECUTIVE COMPENSATION (CONTINUED)
(3) | This row reflects the number of stock options granted under the Fortune Brands Home and Security, Inc. 2013 Long-Term Incentive Plan (the “LTIP”) and the grant date fair value of the stock options |
(4) | The amounts in this row reflect the number of RSUs that were awarded under the LTIP and will vest in three equal annual installments, subject to continued employment. For certain |
(5) | The amounts in this row reflect the range of potential payouts for PSAs that were awarded under the LTIP for the |
(6) | For Mr. Randich, the amounts in this row reflect the number of RSUs that were awarded as a retention equity award. Fifty percent of the award will vest on the second anniversary of the grant date, twenty-five percent will vest on each of the third and fourth anniversaries of the grant date, subject to continued employment. |
(7) | For Mr. Fink, amounts in this row reflect the number of RSUs that were awarded in connection with a one-time new hire equity award, which will vest in three equal annual installments, subject to continued employment. |
2014 EXECUTIVE COMPENSATION (CONTINUED)
(1) | Each outstanding stock option granted that is currently vested and exercisable is listed in this column. |
2015 EXECUTIVE COMPENSATION (CONTINUED)
(2) | Each outstanding stock option that is not yet vested and exercisable is listed in this column. All stock options listed in this column were granted on |
Number of Stock Options Vesting | Number of Stock Options Vesting by Year | |||||||||||||||||||||||
Name | 2015 | 2016 | 2017 | 2016 | 2017 | 2018 | ||||||||||||||||||
Christopher J. Klein | 406,400 | 81,266 | 36,067 | 125,433 | 80,233 | 44,167 | ||||||||||||||||||
E. Lee Wyatt, Jr. | 142,699 | 34,599 | 14,767 | 52,299 | 32,467 | 17,700 | ||||||||||||||||||
David M. Randich | 91,832 | 19,833 | 8,700 | 30,367 | 19,233 | 10,533 | ||||||||||||||||||
Nicholas I. Fink | 10,000 | 10,000 | 10,000 | |||||||||||||||||||||
David B. Lingafelter | 100,899 | 18,099 | 7,833 | 26,899 | 16,633 | 8,800 | ||||||||||||||||||
Robert K. Biggart | 6,967 | 6,966 | 6,967 |
(3) | Each outstanding RSU that is time-vested and that had not yet vested as of December 31, |
Number of RSUs Vesting | Number of RSUs Vesting by Year | |||||||||||||||||||||||||||
Name | 2015 | 2016 | 2017 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||||||||
Christopher J. Klein | 131,633 | 22,266 | 10,233 | 33,000 | 20,966 | 10,733 | n/a | |||||||||||||||||||||
E. Lee Wyatt, Jr. | 45,465 | 9,466 | 4,200 | 13,766 | 8,500 | 4,300 | n/a | |||||||||||||||||||||
David M. Randich | 29,699 | 5,432 | 2,467 | 7,999 | 30,033 | 15,067 | 12,500 | |||||||||||||||||||||
Nicholas I. Fink | 10,367 | 10,366 | 10,367 | n/a | ||||||||||||||||||||||||
David B. Lingafelter | 32,832 | 4,933 | 2,200 | 7,067 | 4,333 | 2,133 | n/a | |||||||||||||||||||||
Robert K. Biggart | 7,300 | 7,299 | 1,967 |
(4) | This column reflects the value of the outstanding RSUs that have not yet vested (using the December 31, |
(5) | The amounts reported in this column are based on achieving target performance goals for awards granted in 2014 and |
Number of PSAs Outstanding by Performance Period | ||||||||
Name | 2014-2016 | 2015-2017 | ||||||
Christopher J. Klein | 30,700 | 32,200 | ||||||
E. Lee Wyatt, Jr. | 12,600 | 12,900 | ||||||
David M. Randich | 7,400 | 7,700 | ||||||
Nicholas I. Fink | 0 | 7,200 | ||||||
David B. Lingafelter | 6,600 | 6,400 |
(6) | This column reflects the value of the performance share awards (using the December 31, |
20142015 EXECUTIVE COMPENSATION (CONTINUED)
(1) | This column reflects the number of stock options exercised during |
(2) | This column reflects the difference between the market value of the shares on the date of exercise and the exercise price of the stock options. |
(3) | This column reflects the number of shares acquired upon the vesting of RSUs that were granted in 2011, 2012, 2013 and |
(4) | This column reflects the value of the shares acquired upon the vesting of RSUs and PSAs, which were calculated using the market value of the shares on the vesting dates. |
(1) | Mr. Klein is currently accruing benefits under the Moen Incorporated Pension Plan, a tax-qualified defined benefit pension |
(2) | The benefit amounts listed reflect the present value of the |
(3) | The amounts listed are based on |
(4) | None of the tax-qualified defined benefit pension and non-qualified supplemental retirement plans |
2014 EXECUTIVE COMPENSATION (CONTINUED)
Tax-Qualified Pension Benefits. Messrs. Klein and Lingafelter are the only NEOs currently accruing benefits under a tax-qualified defined benefit pension plan that is broadly available to employees. Messrs. Wyatt, Fink and BiggartRandich are not eligible to participate in a tax-qualified defined benefit pension plan because their hire or transfer dates, as applicable, occurred after the Moen Plan because participation fordate the plans were frozen with respect to new Fortune Brands employees was closed in 2008. Mr. Randich is not eligible to participate in the MasterBrand Cabinets, Inc. Pension Plan because participation under the MasterBrand Cabinets, Inc. Pension Plan for new and/or transferred employees in any executive or managerial position was closed in 2007.participants.
2015 EXECUTIVE COMPENSATION (CONTINUED)
Mr. Klein participates in the Moen Plan under a formula that is applicable to eligible employees of the Company at its corporate headquarters (the “Fortune Brands Program”). Mr. Klein receives pension benefit accruals under the Fortune Brands Program using the following formula: 1.75% of final average earnings multiplied by years of benefit service (up to 15 years) as of December 31, 2007, plus 1% of final average earnings multiplied by years of benefit service (in excess of 15 years) as of December 31, 2007, plus 1% of final average earnings multiplied by years of benefit service on and after January 1, 2008. Compensation taken into account is limited by the Code. Total service taken into account under the Fortune Brands Program is capped at 35 years. Mr. Klein’s benefit will be unreduced if he commences payment after attaining age 62. Payment of early retirement benefits for Mr. Klein under the Fortune Brands Program could commence as early as age 55 but would be calculated using a reduction of 6% per year if he were to commence the payment of benefits prior to the attainment of age 62. Mr. Klein’s benefit will be unreduced if he commences payment after attaining age 62.After December 31, 2016, Mr. Klein will not accrue anystop accruing additional benefits under the Fortune Brands Program after December 31, 2016.Program.
Mr. Lingafelter participates in the Moen Plan as it applies to participants who are employed directly by Moen (the “Moen Program”). Normal retirement benefits under the Moen Program are determined under the following formula: (a) 1.05% of final average earnings up to the covered compensation limit multiplied by years of benefit service (up to 30 years); plus (b) 1.45% of final average earnings in excess of the plan’s compensation limit multiplied by years of benefit service (up to 30 years); plus (c) 1% of final average earnings multiplied by years of benefit service in excess of 30 years. Compensation taken into account is limited by the Code. Mr. Lingafelter’s benefit will be unreduced if he commences payment after attainting age 62. Payment of early retirement benefits for Mr. Lingafelter under the Moen Program could commence as early as age 55, but would be calculated by reducing histhe normal retirement benefit by: (a) 0.33% multiplied by the number of months by which his benefits commencement date precedes his 60th birthday; and (b) 0.5% multiplied by the number of months by which his benefits commencement date occurring after attaining age 60 precedes his 62nd birthday. Mr. Lingafelter’s benefit will be unreduced if he commences payment after attainting age 62.After December 31, 2016, Mr. Lingafelter will not accrue anystop accruing additional benefits under the Moen Program after December 31, 2016.Program.
Non-Qualified Pension Benefits. Messrs. Klein and Lingafelter are the only NEOs currently accruing pension benefits under a non-qualified supplemental retirement plan that is broadly available to employees. Mr. Klein participates in the Fortune Brands Home & SecurityFBHS Supplemental Plan and Mr. Lingafelter participates in the Moen Incorporated Supplemental Retirement Plan (the “FBHS“Moen Supplemental Plan”), which is anare unfunded, non-qualified retirement plan. For Mr. Klein, theplans. The FBHS Supplemental Plan paysand the Moen Supplemental Plan pay the difference between the benefits payable under the Fortune Brands Program formula under the Moen Plantax-qualified pension plan formulas and the amount that would have been paid if the Code did not limit the amount of compensation taken into account under, or benefits that may be paid from, the Moen Plan. Mr.After December 31, 2016, Messrs. Klein and Lingafelter participates in the Moen Incorporated Supplemental Retirement Plan (the “Moen Supplemental Plan”). The Moen Supplemental Plan pays the difference between thewill stop accruing additional pension benefits payable under the Moen Program formula under the MoenFBHS Supplemental Plan and the amount that would have been paid if the Code did not limit the amount of compensation taken into account under, or benefits that may be paid from, the Moen Supplemental Plan.
Under each of the supplemental plans described above, an NEO can elect any form of distribution for supplemental pension payments that is available, and payment of benefits commences at termination of employment following attainment of age 55, subject to any delay required under Section 409A of the Code. Additionally, under each of the supplemental plans described above, in the event the supplemental retirement benefit commences prior to age 62 or is payable in a form other than a single life annuity, the supplemental retirement benefit shall be adjusted using the same factors used under the Moen Plan.
2014 EXECUTIVE COMPENSATION (CONTINUED)
Non-Qualified Profit Sharing Contributions. Messrs. Klein, Wyatt and BiggartFink received non-qualified profit sharing contributions under the FBHS Supplemental Plan. The Company makes profit sharing contributions to the Savings Plan on behalf of all eligible employees of the Company at its corporate headquarters. Profit sharing contributions equal to the difference between the benefits payable under the Savings Plan and the amount that would have been payable if the Code did not limit the amount of compensation taken into account under the Savings Plan are allocated to the FBHS Supplemental Plan. In 2014,2015, the eligible profit sharing contribution amount was equal to 6% of adjusted compensation. This profit sharing formula applies uniformly to all eligible employees and is not enhanced for executives. FBHS Supplemental Plan profit sharing accounts are credited with interest monthly, using the Citigroup US Broad Investment-Grade (USBIG) Bond Index. The FBHS Supplemental Plan pays any defined contribution amounts, whether executive deferrals or supplemental profit sharing, in a lump sum following termination of employment, subject to any delay required under Section 409A of the Code.
2015 EXECUTIVE COMPENSATION (CONTINUED)
None of the other NEOs currently make deferrals or receive profit sharing contributions or make deferrals under any non-qualified defined contribution or profit sharing plans. Mr. Lingafelter maintains an account holding prior contributions under Moen’s non-qualified defined contribution plan, and this account is credited with interest monthly, using the Citigroup US Broad Investment-Grade (USBIG) Bond Index. The Moen Supplemental Plan pays any defined contribution amounts, whether executive deferrals or supplemental profit sharing, in a lump sum following termination of employment, subject to any delay required under Section 409A of the Code.
Mr. Randich accrued supplemental qualified non-elective and supplemental profit sharing benefits under the Therma-Tru Corp. Supplemental Executive Retirement Plan (the “Therma-Tru SERP”) prior to his promotion to President of MasterBrand Cabinets in 2012. Beginning in 2013, Mr. Randich was no longer eligible to participate in the Therma-Tru SERP, however, he maintains an account holding his prior contributions and these accounts are credited with interest on a monthly basis. This account is invested in the Schwab 1000 Index Fund (SNXFX), which is a daily valued mutual fund. Any interest, dividends, gains or losses received from Schwab are allocated across the participants’ accounts in that fund. Participants may opt for elective deferrals, supplemental profit sharing and supplemental qualified non-elective deferral contributions earned under the Therma-Tru SERP to be paid in a lump sum or in substantially equal annual installments over a period of time not to exceed five years.
(1) | Amounts listed in this column were reported as compensation in the last fiscal year in the “All Other Compensation” column of the Summary Compensation Table. |
(2) | No amounts listed in the Aggregate Earnings column were reported in the Summary Compensation Table. |
(3) | Amounts listed in this column for Mr. Randich reflect the aggregate balance of benefits deferred while he was an employee of Therma-Tru Corp. |
20142015 EXECUTIVE COMPENSATION (CONTINUED)
(1) | This table assumes the specified termination events occurred on December 31, |
None of the NEOs qualified for retirement treatment under any of the Company’s compensation programs as of December 31, |
(2) | The amounts reported in this column assume that the executive remains on disability through the full vesting of the award. |
(3) | The amounts reported in this column for options include the value of unvested stock options that would have accelerated in the event of a qualifying termination following a change in control. |
(4) | The Health and Related Benefits listed under the “Death” column reflect the incremental value of life insurance benefits above the benefit level applicable to all employees generally. |
(5) | The amounts reported in the “Death” column reflect the value of the unvested stock options that would have accelerated. The amount reported in the “Disability” column reflect the value of unvested stock options that would have continued to vest according to the vesting schedule. |
20142015 EXECUTIVE COMPENSATION (CONTINUED)
Termination of Employment and Change in Control Arrangements.To protect the Company’s interests in retaining its top talent, the Company has Severance Agreements for the Payment of Benefits Following Termination of Employment (the “Agreements”) with each NEO. Under the terms of the Severance Agreements, each NEO is entitled to severance benefits upon a qualifying termination of employment.employment (i.e., termination by the Company without “cause” or by the NEO for “good reason”). The severance benefits under the Severance Agreements consist of:
an amount equal to a multiple (2 years for Mr. Klein and 1.5 years for all other NEOs) of the NEO’s (1) base salary, (2) target annual cash incentive, plus (3) any profit sharing allocation and matching contributions under the applicable tax-qualified and non-qualified defined contributions plans for the year prior to the year in which the termination takes place;
an additional number of months (equal to the severance multiple described above) of coverage under health, life and accident plans to the extent allowed under the applicable plan; and
an amount equal to the annual cash incentive award the NEO would have received based upon actual Company performance for the calendar year in which the termination date occurs, prorated for the NEO’s service during the year.
The Severance Agreements also contain various restrictive covenants, including a one-year non-solicitation provision, a non-disparagement provisions,provision, and a one-year non-competition restriction. NEOs are also required to sign a release of legal claims against the Company to receive any severance payments.
All of the Severance Agreements contain provisions which provide for enhanced benefits in the event of a qualifying termination (i.e., termination by the Company without “cause” or by the NEO for “good reason”) following a change in control. The Severance Agreements contain “double triggers,” which means that there must be both a change in control of the Company (or applicable operating company) and a qualifying termination of employment before any enhanced benefits are paid. In the event Mr. Klein is terminated within 2 years following a change in control, Mr. Klein’shis multiple is increased from 2 years to 3 years. In the event of termination within 2 years following a change in control of any of the other NEOs, the multiple is increased from 1.5 years to 2 years. The Severance Agreements do not allow for excise tax gross-ups on these amounts.
Treatment of Equity Awards Following a Termination.The LTIP provides forTermination of Employment (other than in the paymentevent of a Change in Control).If a NEO’s employment terminates with or vesting ofwithout cause, all unvested PSAs, RSUs and stock options are forfeited. If a NEO dies, becomes disabled or retires, his or her outstanding equity awards upon termination of employment by reason of death, disabilityvest or retirement of any participant, including the NEOs.are paid as follows:
Treatment of (for awards outstanding as of 12/31/15) | ||||||
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Death | Outstanding RSUs fully vest. | |||||
| Unvested stock options | |||||
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2014 EXECUTIVE COMPENSATION (CONTINUED)
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| Outstanding RSUs continue to vest according to the vesting schedule. | Unvested stock options continue to vest according to the vesting schedule. | ||||
| Outstanding RSUs fully vest. | Unvested stock options fully vest. |
* | The executive must have one |
** | The executive must be 55 years of age with 5 years of service and also have one year of service from the grant date prior to the date of retirement to be entitled to receive the retirement treatment listed above. |
2015 EXECUTIVE COMPENSATION (CONTINUED)
Treatment of Equity Awards Following a Change in Control and Termination of Employment.In the event a NEO is terminated by the Company without cause or by the NEO for good reason following a change in control, his or her equity awards vest or are paid as follows:
Treatment of Equity In the Event of a Change In Control* | ||
Award | Treatment | |
| ||
| ||
PSAs | ||
RSUs | All outstanding RSUs fully vest. | |
Stock Options | All unvested stock options fully vest. |
* | The Board has the ability to exercise its discretion to accelerate outstanding awards in the event of a change in control. |
Retirement Benefits. Upon termination of employment, participants in the Savings Plans and the non-qualified supplemental retirement plans may receive a distribution of their account balances. The Nonqualified Deferred Compensation table on page 39 of this Proxy Statement lists each NEO’s balance under the applicable non-qualified supplemental retirement plans as of the last fiscal year end. The tax-qualified defined benefit pension plans and non-qualified supplemental retirement plans maintained by Fortune Brands and Moen provide pension benefits upon retirement (as defined in the plans). The Pension Benefits table on page 37 of this Proxy Statement and the narrative and footnotes that follow it provide additional detail on the amount and terms of these pension benefits.
(1) | As of December 31, |
(2) | Share available for issuance under the Company’s Long-Term Incentive Plan, which allows for grants of stock options, performance stock awards, restricted stock awards and other stock-based awards. |
The Audit Committee is composed of five directors that are “independent” as defined under the New York Stock Exchange Listed Company Manual and Rule 10A-3 of the Exchange Act. The Audit Committee has a written charter that has been approved by the Board. A copy of the Audit Committee Charter is available on the Company’s website athttp://ir.fbhs.com/governance.cfmcommittees.cfm. The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for 2015.2016.
Management has the responsibility for the Company’s financial statements and overall financial reporting process, including the Company’s systems of internal controls. The independent registered public accounting firm has the responsibility to conduct an independent audit in accordance with generally accepted auditing standards and to issue an opinion on the accuracy of the Company’s financial statements and the effectiveness of the Company’s internal controls. The Audit Committee’s responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has reviewed and discussed the audited financial statements and the Company’s quarterly and annual reports to the SEC with management and the independent registered public accounting firm. Management has confirmed to the Audit Committee that the Company’s financial statements were prepared in accordance with generally accepted accounting principles. The Audit Committee has met with the independent registered public accounting firm and discussed matters that are required to be discussed pursuant to applicable requirements of the Public Company Accounting Oversight Board, including Auditing Standard No. 16,Communications with Audit Committees. The independent registered public accounting firm has provided an unqualified opinion regarding the Company’s financial statements for the year ended December 31, 2014.2015.
The Company’s independent registered public accounting firm has also provided the Audit Committee with the written disclosures and letter required by the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with the independent registered public accounting firm that firm’s independence. The Audit Committee has also reviewed non-audit services provided by the independent registered public accounting firm and has considered the compatibility of these services with maintaining the auditor’s independence.
Based upon the review and discussions with management and the independent registered public accounting firm, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 20142015 for filing with the SEC.
Audit Committee
Ronald V. Waters, III, Chair
A.D. David Mackay
John G. Morikis
David M. Thomas
Norman H. Wesley
AUDIT COMMITTEE MATTERS (CONTINUED)
Fees of Independent Registered Public Accounting Firm
ThePricewaterhouseCoopers LLP (“PwC”) served as the Company’s independent registered public accounting firm of the Company during the year ended December 31, 2014 was PricewaterhouseCoopers LLP (“PwC”).2015. All PwC services were approved in advance by the Audit Committee. The aggregate fees billed by PwC during 20142015 and 20132014 are set forth in the table below:
Type of Fee | Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2015 | Year Ended December 31, 2014 | ||||||||||||
Audit Fees(1) | $ | 2,781,000 | $ | 2,506,000 | $ | 3,196,000 | $ | 2,781,000 | ||||||||
Audit-Related Fees | $ | 0 | $ | 0 | $ | 135,000 | $ | 0 | ||||||||
Tax Fees | $ | 281,000 | $ | 206,000 | $ | 209,000 | $ | 281,000 | ||||||||
All Other Fees | $ | 77,000 | $ | 2,000 | $ | 2,000 | $ | 77,000 |
(1) | For both |
(2) | For 2015, “Audit-Related Fees” represented fees billed by PwC in connection with the Company’s offering of senior notes. |
(3) | For both |
For 2014, “All Other Fees” included fees for an actuarial review of health and welfare plans and for both |
Approval of Audit and Non-Audit Services
The Audit Committee has adopted policies and procedures for the pre-approval of all audit and permissible non-audit services provided by our independent registered public accounting firm. The Audit Committee annually reviews the audit and non-audit services to be performed by the independent registered public accounting firm during the upcoming year. The Audit Committee considers, among other things, whether the provision of specific non-audit services is permissible under existing law and whether it is consistent with maintaining the auditor’s independence. The Audit Committee then approves the audit services and any permissible non-audit services it deems appropriate for the upcoming year. The Audit Committee’s pre-approval of non-audit services is specific as to the services to be provided and includes pre-set spending limits. The provision of any additional non-audit services during the year, or the provision of services in excess of pre-set spending limits, must be pre-approved by either the Audit Committee or by the Chairman of the Audit Committee, who has been delegated authority to pre-approve such services on behalf of the Audit Committee. Any pre-approvals granted by the Chairman of the Audit Committee must be reported to the full Audit Committee at its next regularly scheduled meeting. All of the fees described above under audit fees, tax fees and all other fees for 20142015 were pre-approved by the Audit Committee pursuant to its pre-approval policies and procedures.
The Audit Committee has appointed PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2015.2016. The Audit Committee and the Board recommend that you ratify this appointment. In line with this recommendation, the Board intends to introduce the following resolution at the Annual Meeting:
“RESOLVED, that the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for this Company for the year ending December 31, 20152016 is ratified.”
A representative of PwC will attend the Annual Meeting to make a statement if he or she desires and respond to appropriate questions that may be asked by stockholders. In the event the stockholders fail to ratify the appointment of PwC, the Audit Committee may appoint another independent registered public accounting firm or may decide to maintain its appointment of PwC.
The Board of Directors and the Audit Committee recommend that you vote FOR Item 2.
As required pursuant to Section 14A of the Exchange Act, the Company is providing stockholders with a vote to approve the compensation of the named executive officers as disclosed in this Proxy Statement, on an advisory, non-binding basis, which is commonly referred to as a “Say-on-Pay” vote. The Board has decided the advisory vote on executive compensation will be held on an annual basis at least until the next non-binding stockholder vote on the frequency with which the advisory vote should be held.
The Board believes that executive compensation should be closely tied to Company performance. Our executive compensation programs are designed to reward executives for the achievement of both short-term and long-term strategic and operational goals, as well as the creation of stockholder value. To accomplish this, the Compensation Committee has designed an executive compensation program that:
Creates and reinforces a pay-for-performance culture;
Aligns management’s interests with those of the Company’s stockholders;
Attracts, retains and motivates superior talent through competitive compensation; and
Provides incentive compensation that promotes performance without encouraging excessive risk.
The Company asks that you indicate your approval of the compensation paid to our named executive officers in 2014,2015, as described in this Proxy Statement under the headings “Compensation Discussion and Analysis” and “Executive Compensation,” which includes the compensation tables and narratives.
Because your vote is advisory, it will not be binding on the Board. However, the Board and the Compensation Committee will review the results of the vote and consider the results when making future decisions regarding executive compensation.
For the reasons discussed above, and in this Proxy Statement under the headings “Compensation Discussion and Analysis” and “Executive Compensation,” the Board intends to introduce the following resolution at the Annual Meeting:
“RESOLVED, that the compensation of the named executive officers of the Company, as disclosed in this Proxy Statement under the headings “Compensation Discussion and Analysis” and “Executive Compensation,” including the compensation tables and their accompanying narrative discussion, is approved.”
The Board of Directors recommends that you vote FOR Item 3.
We have listed below, as of March 2, 20151, 2016 (except as otherwise indicated), the beneficial ownership of the Company’s common stock by (a) each director (including the nominees), (b) the named executive officers, (c) directors and executive officers of the Company as a group, and (d) each person known by us to be the beneficial owner of more than five percent of our outstanding common stock. The table is based on information we received from the directors and executive officers, the Trustee of our defined contribution plan and filings made with the SEC.
Name | Amount and Nature of Beneficial Ownership(1) | Percentage of Class | ||||||
JPMorgan Chase & Co.(2) | 21,376,470 | 13.5 | % | |||||
BlackRock, Inc.(3) | 10,410,216 | 6.6 | % | |||||
The Vanguard Group(4) | 9,554,522 | 6.05 | % | |||||
Standard Life Investments Ltd.(5) | 9,476,437 | 6.0 | % | |||||
Artisan Partners Limited Partnership(6) | 9,110,927 | 5.8 | % | |||||
Robert K. Biggart | 11,781 | * | ||||||
Richard A. Goldstein | 25,111 | * | ||||||
Ann F. Hackett(7) | 22,798 | * | ||||||
Christopher J. Klein | 1,481,227 | * | ||||||
David B. Lingafelter(8) | 568,979 | * | ||||||
A. D. David Mackay(9) | 62,611 | * | ||||||
John G. Morikis(10) | 22,350 | * | ||||||
David M. Randich | 272,732 | * | ||||||
David M. Thomas(11) | 32,701 | * | ||||||
Ronald V. Waters, III | 21,937 | * | ||||||
Norman H. Wesley(12) | 86,707 | * | ||||||
E. Lee Wyatt, Jr. (13) | 507,813 | * | ||||||
Directors and executive officers as a group (16 persons)(14) | 3,423,694 | 2.15 | % |
Name | Amount and Nature of Beneficial Ownership(1) | Percentage of Class | ||||||
Wellington Management Group LLP(2) | 15,826,389 | 9.91 | % | |||||
BlackRock, Inc.(3) | 13,139,763 | 8.2 | % | |||||
The Vanguard Group(4) | 11,221,604 | 7.0 | % | |||||
JPMorgan Chase & Co.(5) | 9,516,020 | 5.9 | % | |||||
Artisan Partners Limited Partnership(6) | 9,022,820 | 5.7 | % | |||||
Standard Life Investments Ltd.(7) | 8,919,052 | 5.6 | % | |||||
Nicholas I. Fink | 0 | * | ||||||
Richard A. Goldstein | 27,632 | * | ||||||
Ann F. Hackett(8) | 25,319 | * | ||||||
Susan S. Kilsby | 0 | * | ||||||
Christopher J. Klein(9) | 1,678,939 | * | ||||||
David B. Lingafelter(10) | 508,197 | * | ||||||
A. D. David Mackay(11) | 65,132 | * | ||||||
John G. Morikis(12) | 26,389 | * | ||||||
David M. Randich | 215,012 | * | ||||||
David M. Thomas(13) | 35,222 | * | ||||||
Ronald V. Waters, III | 24,458 | * | ||||||
Norman H. Wesley(14) | 83,793 | * | ||||||
E. Lee Wyatt, Jr. (15) | 682,163 | * | ||||||
Directors and executive officers as a group (18 persons)(16) | 3,558,365 | 2.3 | % |
* | Less than 1% |
(1) | Includes the following number of shares with respect to which the following directors and executive officers have the right to acquire beneficial ownership within 60 days after March |
Name | Number of Shares | |||
| ||||
Richard A. Goldstein | 0 | |||
Ann F. Hackett | 0 | |||
Susan S. Kilsby | 0 | |||
Christopher J. Klein | ||||
David B. Lingafelter | ||||
A. D. David Mackay | 0 | |||
John G. Morikis | 0 | |||
David M. Randich | ||||
David M. Thomas | 0 | |||
Ronald V. Waters, III | 0 | |||
Norman H. Wesley | 0 | |||
E. Lee Wyatt, Jr. |
(2) | In a report filed by |
CERTAIN INFORMATION REGARDING SECURITY HOLDINGS (CONTINUED)
(3) | In a report filed by BlackRock, Inc. (“BlackRock”) on Schedule 13G/A filed on February |
(4) | In a report filed by The Vanguard Group (“Vanguard”) on Schedule 13G/A filed on February 10, |
CERTAIN INFORMATION REGARDING SECURITY HOLDINGS (CONTINUED)
(5) | In a report filed by |
(6) | In a report filed by Artisan Partners Limited Partnership, Artisan Investments GP LLC, Artisan Partners Holdings LP and Artisan Partners Asset Management Inc. (collectively, “Artisan”), on Schedule |
(7) | In a report filed by Standard Life Investments Ltd. (“Standard Life”) on Schedule 13G/A filed on February 16, 2016, Standard Life disclosed that as of December 31, 2015, it had sole voting power over 8,919,052 shares, shared voting power over no shares, sole dispositive power of 8,919,052 shares, and shared dispositive power over no shares. The principal business of Standard Life is One George Street, Edinburgh EH 2LL, United Kingdom. |
(8) | Includes |
Includes |
(10) | Includes 607 shares held in the Fortune Brands stock fund in the Company’s Retirement Savings Plan. |
Includes 8,000 shares held by a trust for which Mr. Mackay has sole investment power; however, he disclaims beneficial ownership of such shares, as well as 5,000 shares held by Mr. Mackay’s spouse. |
Includes 5,742 shares which Mr. Morikis has deferred until the January following the year in which he ceases to be a member of the |
Includes 2,914 shares which Mr. Thomas has deferred until the January following the year in which he ceases to be a member of the |
Includes 67,723 shares held by a trust for which Mr. Wesley has sole investment power; however, he disclaims beneficial ownership of such shares. |
Includes 16,033 shares held by a Mr. Wyatt’s spouse. Also includes 60,750 shares held by a trust for which Mr. Wyatt has sole investment power; however, he disclaims beneficial ownership of such shares. |
The table includes |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and certain officers, as well as persons who have beneficial ownership of more than 10 percent of our common stock, to file initial reports of beneficial ownership on Form 3, and reports of subsequent changes in beneficial ownership on Forms 4 or 5, with the SEC. Based solely on our review of these forms, and certifications from our directors and officers that no other reports were required for such persons, we believe that all directors and officers subject to Section 16 complied with the filing requirements applicable to them for the fiscal year ended December 31, 2014.
Our Bylaws provide that in order for a stockholder to (i) nominate a candidate for election to our Board at the 2016 Annual Meeting, or (ii) propose business for consideration at the 2016 Annual Meeting, written notice containing the information required by the Bylaws must be delivered to the Secretary of the Company no less than 90 days nor more than 120 days before the anniversary of the prior year’s Annual Meeting, that is, after December 30, 2015 but no later than January 29, 2016 for the 2016 Annual Meeting.
Under SEC rules, if a stockholder wishes to submit a proposal for possible inclusion in the Company’s 2016 proxy statement pursuant to Rule 14a-8 of the Exchange Act, we must receive it on or before November 11, 2015.
Copies of the Restated Certificate of Incorporation and Bylaws are available upon written request to the Secretary, Fortune Brands Home & Security, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015. The person presiding at the meeting is authorized to determine if a proposed matter is properly brought before the meeting or if a nomination is properly made.
The distribution of this Proxy Statement with respect to the Company’s 2015 Annual Meeting of Stockholders is accompanied by the financial statements and other financial information as required by SEC rules. A copy of the Company’s Annual Report on Form 10-K as filed with the SEC for its last fiscal year, including any financial statements and financial statement schedules to the Form 10-K, will be made available to stockholders without charge, upon written request to the Secretary, Fortune Brands Home & Security, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015. The Company will furnish any exhibits to Form 10-K to each stockholder requesting them upon payment of a fee of $.10 per page to cover its cost.
Our Board is soliciting this proxy. The Company will bear the expense of soliciting proxies for this meeting, including mailing costs. In addition to mailing copies of the Notice of Internet Availability of Proxy Materials (the “Notice”) to stockholders, we will request that persons who hold stock in their names or custody, or in the names of nominees, for the benefit of others, forward copies of the Notice to the beneficial owners of our stock and request the authority to execute the proxies. To assure that there is sufficient representation at the meeting, our proxy solicitor, our officers or our employees may solicit proxies by telephone, facsimile or in person. In addition, we have retained Innisfree M&A Incorporated to aid in soliciting proxies for a fee, estimated at $15,000, plus reasonable out-of-pocket expenses. Our total expenses will depend upon the volume of shares represented by the proxies received in response to the Notice and Proxy Statement.
Stockholders who do not intend to be present at the meeting are urged to send in their proxies without delay or vote their proxies by telephone or the Internet. Prompt response is helpful, and your cooperation will be appreciated.
Multiple Stockholders Having the Same Address
If you and other residents at your mailing address own shares of common stock in street name, your broker or bank may have sent you a notice that your household will receive only one Notice or set of proxy materials for each company in which you hold stock through that broker or bank. This practice, known as “householding,” is designed to reduce our printing and postage costs. If you did not respond, the broker or bank will assume that you have consented, and will send only one copy of the Notice to your address. You may revoke your consent to householding at any time by sending your name, the name of your brokerage firm, and your account number to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. The revocation of your consent to householding will be effective 30 days following its receipt. In any event, if you did not receive an individual copy of the Notice, or if you wish to receive individual copies of the Notice or our proxy materials for future meetings, we will send a copy to you if you call Shareholder Services at (847) 484-4538, or write to the Secretary of Fortune Brands Home & Security, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015.
If you and other residents at your mailing address are registered stockholders and you receive more than one copy of the Notice, but you wish to receive only one copy, you must request, in writing, that the Company eliminate these duplicate mailings. To request the elimination of duplicate copies, please write to Wells Fargo Shareowner Services, 1110 Centre Pointe Curve, Suite 101, MAC N9173-010, Mendota Heights, Minnesota 55120.
Other Matters
The Company knows of no other matters to be submitted to the stockholders at the meeting. If any other matters properly come before the meeting, the Proxy Committee (or their substitutes) will vote the shares they represent in accordance with the recommendation of the Board.
March 3, 2015
APPENDIX A
RECONCILIATIONS
DILUTED EPS BEFORE CHARGES/GAINS RECONCILIATION
RECONCILIATION OF OPERATING INCOME BEFORE CHARGES/GAINS TO GAAP OPERATING INCOME (In millions) (Unaudited) | ||||||||||||||||
For the twelve months ended | ||||||||||||||||
December 31, 2014 | December 31, 2013 | $ change | % change | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
CABINETS | ||||||||||||||||
Operating income before charges/gains(a) | $ | 138.3 | $ | 120.6 | $ | 17.7 | 15 | |||||||||
Restructuring charges(b) | (0.4 | ) | (2.2 | ) | 1.8 | 82 | ||||||||||
Other charges(b) | ||||||||||||||||
Cost of products sold | — | (0.1 | ) | 0.1 | 100 | |||||||||||
Asset impairment charge | — | (21.2 | ) | 21.2 | 100 | |||||||||||
Operating income (GAAP) | $ | 137.9 | $ | 97.1 | $ | 40.8 | 42 | |||||||||
PLUMBING | ||||||||||||||||
Operating income before charges/gains(a) | $ | 260.2 | $ | 229.7 | $ | 30.5 | 13 | |||||||||
Restructuring charges(b) | (0.5 | ) | (0.6 | ) | 0.1 | 17 | ||||||||||
Other charges(b) | ||||||||||||||||
Cost of products sold | (0.2 | ) | (0.6 | ) | 0.4 | 67 | ||||||||||
Selling, general and administrative expenses | (0.6 | ) | (0.2 | ) | (0.4 | ) | (200 | ) | ||||||||
Operating income (GAAP) | $ | 258.9 | $ | 228.3 | $ | 30.6 | 13 | |||||||||
DOORS | ||||||||||||||||
Operating income before charges/gains(a) | $ | 29.2 | $ | 15.3 | $ | 13.9 | 91 | |||||||||
Operating income (GAAP) | $ | 29.2 | $ | 15.3 | $ | 13.9 | 91 | |||||||||
SECURITY | ||||||||||||||||
Operating income before charges/gains(a) | $ | 59.2 | $ | 55.4 | $ | 3.8 | 7 | |||||||||
Restructuring charges(b) | (4.1 | ) | — | (4.1 | ) | (100 | ) | |||||||||
Other charges(b) | ||||||||||||||||
Cost of products sold | (5.7 | ) | — | (5.7 | ) | (100 | ) | |||||||||
Operating income (GAAP) | $ | 49.4 | $ | 55.4 | $ | (6.0 | ) | (11 | ) | |||||||
CORPORATE | ||||||||||||||||
Corporate expense before charges/gains(a) | $ | (56.2 | ) | $ | (68.0 | ) | $ | 11.8 | 17 | |||||||
Restructuring charges(b) | (2.0 | ) | — | (2.0 | ) | (100 | ) | |||||||||
Defined benefit plan actuarial losses(b) | (13.7 | ) | (5.1 | ) | (8.6 | ) | (169 | ) | ||||||||
Corporate expense (GAAP) | $ | (71.9 | ) | $ | (73.1 | ) | $ | 1.2 | 2 | |||||||
FORTUNE BRANDS HOME & SECURITY | ||||||||||||||||
Operating income before charges/gains(a) | $ | 430.7 | $ | 353.0 | $ | 77.7 | 22 | |||||||||
Restructuring charges(b) | (7.0 | ) | (2.8 | ) | (4.2 | ) | (150 | ) | ||||||||
Other charges(b) | ||||||||||||||||
Cost of products sold | (5.9 | ) | (0.7 | ) | (5.2 | ) | (743 | ) | ||||||||
Selling, general and administrative expenses | (0.6 | ) | (0.2 | ) | (0.4 | ) | (200 | ) | ||||||||
Asset impairment charge | — | (21.2 | ) | 21.2 | 100 | |||||||||||
Defined benefit plan actuarial losses(c) | (13.7 | ) | (5.1 | ) | (8.6 | ) | (169 | ) | ||||||||
Operating income (GAAP) | $ | 403.5 | $ | 323.0 | $ | 80.5 | 25 |
2015 | 2014 | 2013 | ||||||||||
Earnings Per Common Share -Diluted | ||||||||||||
Diluted EPS Before Charges/Gains | $ | 2.07 | $ | 1.74 | $ | 1.37 | ||||||
Restructuring and other charges | (0.10) | (0.05) | (0.02) | |||||||||
Asset impairment charges | - | (0.01) | (0.12) | |||||||||
Norcraft Transaction Costs | (0.08) | - | - | |||||||||
Defined benefit plan actuarial losses | (0.01) | (0.05) | (0.02) | |||||||||
Tax item | - | 0.01 | - | |||||||||
|
| |||||||||||
Diluted EPS - Continuing Operations | $ | 1.88 | $ | 1.64 | $ | 1.21 |
Diluted EPS before charges/gains is income from continuing operations, net of tax, less noncontrolling interests calculated on a diluted per-share basis excluding restructuring and other charges, asset impairment charges, tax items, and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. Diluted EPS before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to evaluate the overall performance of the Company and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the Company from year to year. This measure may be inconsistent with similar measures presented by other companies.
For the twelve months ended December 31, 2015, diluted EPS before charges/gains is income from continuing operations, net of tax and including the impact from noncontrolling interests calculated on a diluted per-share basis excluding $22.7 million ($16.3 million after tax or $0.10 per diluted share) of restructuring and other charges, transaction costs related to the acquisition of Norcraft of $17.1 million ($13.4 million after tax or $0.08 per diluted share), the impact of expense from actuarial losses associated with our defined benefit plans of $2.5 million ($1.6 million after tax or $0.01 per diluted share) and a charge related to a tax item of $0.2 million.
For the twelve months ended December 31, 2014, diluted EPS before charges/gains is income from continuing operations, net of tax and including the impact from noncontrolling interests calculated on a diluted per-share basis excluding $13.5 million ($8.4 million after tax or $0.05 per diluted share) of restructuring and other charges, a tax benefit resulting from the write off of our investment in an international subsidiary of $1.6 million ($1.6 million after tax or $0.01 per diluted share), an asset impairment charge of $1.6 million ($1.0 million after tax or $0.01 per diluted share) and the impact of expense from actuarial losses associated with our defined benefit plans of $13.7 million ($8.7 million after tax or $0.05 per diluted share).
For the twelve months ended December 31, 2013, diluted EPS before charges/gains is income from continuing operations, net of tax and including the impact from noncontrolling interests calculated on a diluted per-share basis excluding $3.7 million ($3.0 million after tax or $0.02 per diluted share) of restructuring and other charges, asset impairment charges of $27.4 million ($20.0 million after tax or $0.12 per diluted share) and the impact of expense from actuarial losses associated with our defined benefit plans of $5.1 million ($3.3 million after tax or $0.02 per diluted share).
APPENDIX A (Continued) (CONTINUED)
Reconciliation of ROIC before charges/gains to ROIC
($ in millions)
2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations, net of tax, less noncontrolling interests | Average Invested Capital | ROIC | Income from continuing operations, net of tax, less noncontrolling interests | Average Invested Capital | ROIC | Income from continuing operations, net of tax, less noncontrolling interests | Average Invested Capital | ROIC | ||||||||||||||||||||||||||||||||||||||||||||
As reported | $ | 306 | / | $ | 3,064 | = | 10.0 | % | $ | 272 | / | $ | 2,756 | = | 9.9 | % | �� | $ | 208 | / | $ | 2,576 | = | 8.1 | % | |||||||||||||||||||||||||||
Restructuring and other charges and other select items | 60 | 107 | 28 | 94 | 33 | 35 | ||||||||||||||||||||||||||||||||||||||||||||||
Before charges/gains | $ | 366 | / | $ | 3,171 | = | 11.5 | % | $ | 300 | / | $ | 2,850 | = | 10.5 | % | $ | 241 | / | $ | 2,611 | = | 9.2 | % |
Return on Invested Capital - or ROIC - Before Charges/Gains is income from continuing operations, net of tax, less noncontrolling interests plus after-tax interest expense derived in accordance with GAAP excluding any restructuring and other charges and other select items divided by a two point average of GAAP Invested Capital (net debt plus stockholders’ equity) excluding any restructuring and other charges and other select items.
ROIC Before Charges/Gains is a measure not derived in accordance with GAAP. Management uses this measure to determine the returns generated by the Company and to evaluate and identify cost-reduction initiatives. Management believes this measure provides investors with helpful supplemental information regarding the underlying performance of the Company from year to year. These measures may be inconsistent with similar measures presented by other companies.
APPENDIX A (CONTINUED)
RECONCILIATION OF OPERATING INCOME BEFORE CHARGES/GAINS TO GAAP OPERATING INCOME (In millions) (Unaudited)
| |||||||||||||||||||||||||
For the twelve months ended | |||||||||||||||||||||||||
December 31, 2015 | December 31, 2014 | December 31, 2013 | Three Year $ change | Three Year % change | |||||||||||||||||||||
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Operating income before charges/gains(a) | $ | 195.7 | $ | 138.3 | $ | 120.6 | $ | 75.1 | 62 | ||||||||||||||||
Restructuring charges(b) | (1.2 | ) | (0.4 | ) | (2.2 | ) | 1.0 | (45 | ) | ||||||||||||||||
Other charges(b) | |||||||||||||||||||||||||
Cost of products sold | (2.1 | ) | — | (0.1 | ) | (2.0 | ) | 2,000 | |||||||||||||||||
Asset impairment charge | — | — | (21.2 | ) | 21.2 | 100 | |||||||||||||||||||
Operating income (GAAP) | $ | 192.4 | $ | 137.9 | $ | 97.1 | $ | 95.3 | 98 | ||||||||||||||||
PLUMBING | |||||||||||||||||||||||||
Operating income before charges/gains(a) | $ | 292.5 | $ | 260.2 | $ | 229.7 | $ | 62.8 | 27 | ||||||||||||||||
Restructuring charges(b) | (6.4 | ) | (0.5 | ) | (0.6 | ) | (5.8 | ) | 967 | ||||||||||||||||
Other charges(b) | |||||||||||||||||||||||||
Cost of products sold | (0.1 | ) | (0.2 | ) | (0.6 | ) | 0.5 | (83 | ) | ||||||||||||||||
Selling, general and administrative expenses | (0.6 | ) | (0.6 | ) | (0.2 | ) | (0.4 | ) | 200 | ||||||||||||||||
Operating income (GAAP) | $ | 285.4 | $ | 258.9 | $ | 228.3 | $ | 57.1 | 25 | ||||||||||||||||
DOORS | |||||||||||||||||||||||||
Operating income before charges/gains(a) | $ | 44.0 | $ | 29.2 | $ | 15.3 | $ | 28.7 | 188 | ||||||||||||||||
Operating income (GAAP) | $ | 44.0 | $ | 29.2 | $ | 15.3 | $ | 28.7 | 188 | ||||||||||||||||
SECURITY | |||||||||||||||||||||||||
Operating income before charges/gains(a) | $ | 69.3 | $ | 59.2 | $ | 55.4 | $ | 13.9 | 25 | ||||||||||||||||
Restructuring charges(b) | (8.1 | ) | (4.1 | ) | — | (8.1 | ) | (100 | ) | ||||||||||||||||
Other charges(b) | |||||||||||||||||||||||||
Cost of products sold | (5.3 | ) | (5.7 | ) | — | (5.3 | ) | (100 | ) | ||||||||||||||||
Operating income (GAAP) | $ | 55.9 | $ | 49.4 | $ | 55.4 | $ | 0.5 | 1 | ||||||||||||||||
CORPORATE | |||||||||||||||||||||||||
Corporate expense before charges/gains(a) | $ | (69.2 | ) | $ | (65.0 | ) | $ | (78.2 | ) | $ | 9.0 | (12 | ) | ||||||||||||
Restructuring charges(b) | (0.9 | ) | (2.0 | ) | — | (0.9 | ) | (100 | ) | ||||||||||||||||
Selling, general and administrative expenses | (15.1 | ) | — | — | (15.1 | ) | (100 | ) | |||||||||||||||||
General and administrative expense (GAAP) | (85.2 | ) | (67.0 | ) | (78.2 | ) | (7.0 | ) | 9 | ||||||||||||||||
Defined benefit plan income before actuarial gains/(losses) | $ | 6.1 | $ | 8.8 | $ | 10.2 | $ | (4.1 | ) | (40 | ) | ||||||||||||||
Defined benefit plan actuarial losses(c) | (2.5 | ) | (13.7 | ) | (5.1 | ) | 2.6 | (51 | ) | ||||||||||||||||
Defined benefit plan income/(expense) (GAAP) | 3.6 | (4.9 | ) | 5.1 | (1.5 | ) | (29 | ) | |||||||||||||||||
Corporate expense (GAAP) | $ | (81.6 | ) | $ | (71.9 | ) | $ | (73.1 | ) | $ | (8.5 | ) | 12 | ||||||||||||
FORTUNE BRANDS HOME & SECURITY | |||||||||||||||||||||||||
Operating income before charges/gains(a) | $ | 538.4 | $ | 430.7 | $ | 353.0 | $ | 185.4 | 53 | ||||||||||||||||
Restructuring charges(b) | (16.6 | ) | (7.0 | ) | (2.8 | ) | (13.8 | ) | 493 | ||||||||||||||||
Other charges(b) | |||||||||||||||||||||||||
Cost of products sold | (7.5 | ) | (5.9 | ) | (0.7 | ) | (6.8 | ) | 971 | ||||||||||||||||
Selling, general and administrative expenses | (15.7 | ) | (0.6 | ) | (0.2 | ) | (15.5 | ) | 7,750 | ||||||||||||||||
Asset impairment charges | — | — | (21.2 | ) | 21.2 | 100 | |||||||||||||||||||
Defined benefit plan actuarial losses(c) | (2.5 | ) | (13.7 | ) | (5.1 | ) | 2.6 | (51 | ) | ||||||||||||||||
Operating income (GAAP) | $ | 496.1 | $ | 403.5 | $ | 323.0 | $ | 173.1 | 54 |
APPENDIX A (CONTINUED)
(a) Operating income before charges/gains is operating income derived in accordance with U.S. generally accepted accounting principles (“GAAP”) excluding restructuring and other charges, asset impairment charges and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. Operating income before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to evaluate the returns generated by FBHS and its business segments. Management believes this measure provides investors with helpful supplemental information regarding the underlying performance of the Company from period to period. This measure may be inconsistent with similar measures presented by other companies.
(b) Restructuring charges are costs incurred to implement significant cost reduction initiatives and include workforce reduction costs. “Other charges” represent charges or gains directly related to restructuring initiatives that cannot be reported as restructuring under GAAP. Such charges or gains may include losses on disposal of inventories, trade receivables allowances from exiting product lines, accelerated depreciation resulting from the closure of facilities, and gains and losses on the sale of previously closed facilities.
(c) Represents actuarial gains or losses associated with our defined benefit plans. Actuarial gains or losses in a period represent the difference between actual and actuarially assumed experience, principally related to liability discount rates and plan asset returns, as well as other actuarial assumptions including compensation rates, turnover rates, and health care cost trend rates. The Company recognizes actuarial gains or losses immediately in operating income to the extent they cumulatively exceed a “corridor.” The corridor is equal to the greater of 10% of the fair value of plan assets or 10% of a plan’s projected benefit obligation. Actuarial gains or losses are determined at required remeasurement dates which occur at least annually in the fourth quarter. Remeasurements due to plan amendments and settlements may also occur in interim periods during the year. Our operating income before charges/gains reflects our expected rate of return on pension plan assets which in a given period may materially differ from our actual return on plan assets. Our liability discount rates and plan asset returns are based upon difficult to predict fluctuations in global bond and equity markets that are not directly related to the Company’s business. We believe that the exclusion of actuarial gains or losses from operating income before charges/gains provides investors with useful supplemental information regarding the underlying performance of the business from period to period that may be considered in conjunction with our operating income as measured on a GAAP basis. We present this supplemental information because such actuarial gains or losses may create volatility in our operating income that does not necessarily have an immediate corresponding impact on operating cash flow or the actual compensation and benefits provided to our employees. The table below sets forth additional supplemental information on the Company’s historical actual and expected rate of return on plan assets, as well as discount rates used to value its defined benefit obligations:
($ In millions) | Year Ended | Year Ended | ||||||||||||||
December 31, 2014 | December 31, 2013 | |||||||||||||||
% | $ | % | $ | |||||||||||||
Actual return on plan assets | 9.8 | % | $ | 52.0 | 15.2 | % | $ | 74.6 | ||||||||
Expected return on plan assets | 7.4 | % | 42.2 | 7.8 | % | 41.8 | ||||||||||
Discount rate at December 31: | ||||||||||||||||
Pension benefits | 4.2 | % | 5.0 | % | ||||||||||||
Postretirement benefits | 3.5 | % | 4.3 | % |
A-2
($ In millions) | Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||||||||||||||||
% | $ | % | $ | % | $ | |||||||||||||||||||
Actual return on plan assets | (2.1 | )% | ($ | 18.2 | ) | 9.8 | % | $ | 52.0 | 15.2 | % | $ | 74.6 | |||||||||||
Expected return on plan assets | 6.8 | % | 40.2 | 7.4 | % | 42.2 | 7.8 | % | 41.8 | |||||||||||||||
Discount rate at December 31: | ||||||||||||||||||||||||
Pension benefits | 4.6 | % | 4.2 | % | 5.0 | % | ||||||||||||||||||
Postretirement benefits | 4.1 | % | 3.5 | % | 4.3 | % |
APPENDIX A (CONTINUED)
APPENDIX A (CONTINUED)
DILUTED EPS BEFORE CHARGES/GAINS RECONCILIATION
2014 | 2013 | % Change | ||||||||||
Earnings Per Common Share - Diluted | ||||||||||||
Diluted EPS Before Charges/Gains | $ | 1.74 | $ | 1.37 | 27% | |||||||
Restructuring and other charges | (0.05) | (0.02) | (150)% | |||||||||
Asset impairment charges | (0.01) | (0.12) | 92% | |||||||||
Defined benefit plan actuarial losses | (0.05) | (0.02) | (150)% | |||||||||
Tax item | 0.01 | - | 100% | |||||||||
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Diluted EPS - Continuing Operations | $ | 1.64 | $ | 1.21 | 36% |
Diluted EPS before charges/gains is income from continuing operations, net of tax, less noncontrolling interests calculated on a diluted per-share basis excluding restructuring and other charges, asset impairment charges, tax items, and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. Diluted EPS before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to evaluate the overall performance of the Company and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the Company from year to year. This measure may be inconsistent with similar measures presented by other companies.
For the twelve months ended December 31, 2014, diluted EPS before charges/gains is income from continuing operations, net of tax and including the impact from noncontrolling interests calculated on a diluted per-share basis excluding $13.5 million ($8.4 million after tax or $0.05 per diluted share) of restructuring and other charges, a tax benefit resulting from the write off of our investment in an international subsidiary of $1.6 million ($1.6 million after tax or $0.01 per diluted share), an asset impairment charge of $1.6 million ($1.0 million after tax or $0.01 per diluted share) and the impact of expense from actuarial losses associated with our defined benefit plans of $13.7 million ($8.7 million after tax or $0.05 per diluted share).
For the twelve months ended December 31, 2013, diluted EPS before charges/gains is income from continuing operations, net of tax and including the impact from noncontrolling interests calculated on a diluted per-share basis excluding $3.7 million ($3.0 million after tax or $0.02 per diluted share) of restructuring and other charges, asset impairment charges of $27.4 million ($20.0 million after tax or $0.12 per diluted share) and the impact of expense from actuarial losses associated with our defined benefit plans of $5.1 million ($3.3 million after tax or $0.02 per diluted share).
Reconciliation of ROIC before charges/gains to ROIC
($ in millions)
2014 | 2013 | |||||||||||||||||||||||||||||||||||||
Income from continuing operations, net of tax, less noncontrolling interests | Average Invested Capital | ROIC | Income from continuing operations, net of tax, less noncontrolling interests | Average Invested Capital | ROIC | |||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||
GAAP | $ | 272 | / | $ | 2,756 | = | 9.9 | % | $ | 208 | / | $ | 2,576 | = | 8.1% | |||||||||||||||||||||||
Restructuring and other charges and other select items | 28 | 94 | 33 | 35 | ||||||||||||||||||||||||||||||||||
Before charges/gains | $ | 300 | / | $ | 2,850 | = | 10.5 | % | $ | 241 | / | $ | 2,611 | = | 9.2% |
APPENDIX A (CONTINUED)
Return on Invested Capital - or ROIC - Before Charges/Gains is income from continuing operations, net of tax, less noncontrolling interests plus after-tax interest expense derived in accordance with GAAP excluding any restructuring and other charges and other select items divided by a two point average of GAAP Invested Capital (net debt plus stockholders’ equity) excluding any restructuring and other charges and other select items.
ROIC Before Charges/Gains is a measure not derived in accordance with GAAP. Management uses this measure to determine the returns generated by the Company and to evaluate and identify cost-reduction initiatives. Management believes this measure provides investors with helpful supplemental information regarding the underlying performance of the Company from year to year. This measure may be inconsistent with similar measures presented by other companies.
Use of Non-GAAP Financial Information in Connection with Incentive Compensation
The Company utilizes measures not derived in accordance with GAAP such as operating income before charges/gains, earnings per share before charges/gains, return on invested capital before charges/gains, and return on net tangible assets before charges/gains when determining performance results in connection with the incentive compensation programs as described in the Compensation Discussion and Analysis. The 20142015 EPS results as set forth in the CD&A were calculated on a before charges/gains basis and for the purpose of determining the 20142015 annual cash incentive awards and the 2012-2014 performance share awards, werewas adjusted for the impact of foreign exchange. The 20142015 ROIC results as set forth in the CD&A were calculated on a before charges/gains basis and represents income from continuing operations, net of tax, less noncontrollingnon-controlling interests plus after-tax interest expense derived in accordance with GAAP, excluding
APPENDIX A (CONTINUED)
any restructuring and other charges and other select items, divided by a two point average of GAAP Invested Capital (net debt plus stockholders’ equity), excluding any restructuring and other charges and other select items. The 20142015 OI results as set forth in the CD&A were calculated on a before charges/gains basis and for the purpose of determining the 20142015 annual cash incentive awards, were also adjusted for the impact of foreign exchange and other select items. The 20142015 RONTA results as set forth in the CD&A were calculated on a before charges/gains basis and represents operating income derived in accordance with GAAP, excluding any restructuring and other charges and for the purpose of determining the 20142015 annual cash incentive awards, were also adjusted for the impact of foreign exchange and other select items, divided by the thirteen month average of GAAP assets less intangibles, accounts payable and other non-interest bearing liabilities (i.e., Net Tangible Assets). These figures may be different from those used by management when providing guidance or discussing Company results. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP and may also be inconsistent with similar measures presented by other companies.
FORTUNE BRANDS HOME & SECURITY, INC.
ATTN: CORPORATE SECRETARY
520 LAKE COOK ROAD
DEERFIELD, IL 6001560015-5611
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FORTUNE BRANDS HOME & SECURITY, INC. | ||||||||||||||||||||||
The Board of Directors recommends you voteFOR the following proposals: | ||||||||||||||||||||||
Item 1 - Election of Class | For | Against | Abstain | |||||||||||||||||||
1a. | ¨ | ¨ | ¨ | |||||||||||||||||||
1b. | ||||||||||||||||||||||
| ¨ | ¨ | ¨ | |||||||||||||||||||
For | Against | Abstain | ||||||||||||||||||||
Item 2 - Ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for | ¨ | ¨ | ¨ | |||||||||||||||||||
Item 3 - Advisory vote to approve named executive officer compensation. | ¨ | ¨ | ¨ | |||||||||||||||||||
NOTE:Such other business as may properly come before the meeting or any adjournment thereof. | ||||||||||||||||||||||
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Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, April 28, 201526, 2016
RenaissanceWestin Chicago North Shore Hotel
933 Skokie Boulevard601 N. Milwaukee Avenue
Northbrook,Wheeling, Illinois 6006260090
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M81795-P59877-Z64809M99833-P73990-Z67243
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The Board of Directors solicits this proxy for use at the Annual Meeting on Tuesday, April 28, 2015.26, 2016.
The stockholder(s) whose signature(s) appear(s) on the reverse side of this proxy card appoint(s) each of CHRISTOPHER J. KLEIN, ROBERT K. BIGGART and E. LEE WYATT, JR. (and any other person chosen by Messrs. Klein, Biggart or Wyatt) proxies, to vote all shares of Fortune Brands Home & Security common stock which the stockholder(s) would be entitled to vote on at the Annual Meeting of Stockholders to be held on April 28, 201526, 2016 at the RenaissanceWestin Chicago North Shore, Hotel, 933 Skokie Boulevard, Northbrook,601 N. Milwaukee Avenue, Wheeling, Illinois at 8:00 a.m. CDT, on Items 1, 2 and 3 referred to on the reverse side and described in the Proxy Statement, and on any other matters which may properly come before the meeting, with all powers the stockholder(s) would possess if personally present and at any adjournment or postponement of the Annual Meeting. A majority of the proxies (or, if only one, then that one) or their substitutes acting at the meeting may exercise all powers conferred.
This proxy when properly executed will be voted in the manner directed by the stockholder(s). Unless the stockholder(s) indicate(s) otherwise, the proxies will voteFOR the election of the nominees to the Board of Directors (Item 1) andFOR Items 2 and 3.
If you participate in the Fortune Brands Home & Security Stock Fund under a retirement savings trust, your signature on the reverse side will be a direction to the trustee to vote as instructed.
FORTUNE BRANDS HOME & SECURITY, INC.
520 LAKE COOK ROAD
DEERFIELD, IL 60015-5611
Address Changes/Comments: |
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