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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HEXCEL CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notice of
Annual Meeting
of Stockholders
2019
Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 |
Notice of Annual Meeting of Stockholders |
Hexcel Corporation
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 4, 20179, 2019
The Annual Meeting of Stockholders of Hexcel Corporation will be held in the Community Room, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut, on May 4, 20179, 2019 at 10:30 a.m. local time for the following matters:purposes:
1. | To elect |
2. | To |
3. | To |
4. | To vote on a proposal to ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for |
5. | To transact such other business as may properly come before the meeting or any adjournments or postponements thereof. |
Stockholders
The Board of record atDirectors has fixed the close of business on March 9, 2017 will be13, 2019, as the record date for determination of the stockholders entitled to vote at the meeting andor any adjournments or postponements. A list of these stockholders will be available for inspection at the executive offices of Hexcel and will also be available for inspection at the annual meeting.postponements thereof.
By order of the Board of Directors Gail E. Lehman Executive Vice President, General Counsel and Secretary
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Dated: March 17, 201722, 2019
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND COMPLETEWE ENCOURAGE YOU TO VOTE BY PROXY EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
ENCLOSEDIMPORTANT NOTICE REGARDING THE
AVAILABILITY OF PROXY CARD AND RETURN IT PROMPTLY INMATERIALS FOR THE ENCLOSED
STOCKHOLDER MEETING TO BE HELD ON MAY 9, 2019
The proxy statement, annual report to stockholders and related materials are available on our website atPRE-ADDRESSED, POSTAGE-PAID, RETURN ENVELOPE.http://investors.hexcel.com/financials/proxy-materials.
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Hexcel Corporation
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be held on May 4, 2017
This proxy statement is furnished to the holders of common stock of Hexcel Corporation (“Hexcel” or the “company”) common stock, in connection with the solicitation of proxies by Hexcel on behalf of the Board of Directors of the company (the “board of directors” or the “board”) for use at the Annual Meeting of Stockholders, or any adjournments or postponements of the meeting (the “Annual Meeting”)thereof, to be held on May 4, 2017.9, 2019 (the “Annual Meeting”). This proxy statement and the accompanying proxy/voting instructionproxy card are first being distributed or made available to stockholders on or about March 17,22, 2019.
HEXCEL CORPORATION | 2019 Proxy Statement |
This summary highlights selected information contained in this proxy statement. Please read the entire proxy statement carefully before voting your shares.
The Meeting
TO BE HELD ON: | May 9, 2019 | |
TIME: | 10:30 am, local time | |
PLACE: | Community Room, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901 | |
RECORD DATE: | You will be eligible to vote your shares of common stock at the Annual Meeting if you were astockholder of record at the close of business on March 13, 2019. As of that date, 84,868,544shares of common stock were issued and outstanding. The holders of 42,434,273 shares willconstitute a quorum at the Annual Meeting. |
Proposals and Board Recommendations
Proposal No. | Proposal | Board Recommendation | See Page | |
1 | Elect nine directors | FORall nominees | 1 | |
2 | Approve, on an advisory basis, 2018 executive compensation | FOR | 53 | |
3 | Approve an amendment to the Hexcel Corporation 2013 Incentive Stock Plan | FOR | 55 | |
4 | Ratify the appointment of Ernst & Young LLP as independent registered public accounting firm for 2019 | FOR | 65 |
HEXCEL CORPORATION | 2019 Proxy Statement | i |
2019 PROXY STATEMENT SUMMARY
Company Highlights
Fiscal 2018 Performance
n | Our sales were a record $2.189 billion in 2018, an increase of 11% compared to 2017. |
n | Our diluted net income per common share was $3.11 for 2018, compared to $3.09 in 2017. |
n | Our adjusted diluted earnings per share was $3.05 for 2018, as compared to $2.68 in 2017. Adjusted diluted earnings per share is a non-GAAP financial measure. See Annex A to this proxy statement for a reconciliation of adjusted diluted earnings per share to GAAP diluted earnings per share. |
n | Our net cash provided by operating activities was $421.4 million in 2018, compared to $428.7 million in 2017. Our free cash flow, a non-GAAP financial measure, was a record $237.3 million in 2018, compared to $150.6 million in 2017. Free cash flow equals our net cash provided by operating activities minus capital expenditures ($184.1 million in 2018; $278.1 million in 2017). |
Corporate Governance Practices
We believe that our corporate governance practices generally reflect best practices consistent with Hexcel’s and our stockholders’ interests.
ü | Eight of nine director nominees are independent |
ü | Average age of director nominees is 60 |
ü | Gender diversity reflected in the composition of the board |
ü | Diversity of director experience, including in business background, technological acumen and tenure, reflected in the composition of the board |
ü | Mandatory retirement age of 70 for directors |
ü | Annual elections for all directors |
ü | Independent lead director empowered with broad responsibilities and governance duties |
ü | Majority voting in uncontested elections of directors |
ü | One class of stock with equal voting rights |
ü | Comprehensive enterprise risk, succession and business strategy oversight |
ü | Regular executive sessions of the independent directors |
ü | Annual board and board committee self-evaluations, and peer review of individual directors every other year |
ü | Policies prohibiting hedging and pledging Hexcel stock by directors |
ü | Robust stock ownership guidelines for directors |
Executive Compensation
Our compensation philosophy is to deliver pay for performance, and we follow a number of compensation practices designed to provide a level of performance that creates sustainable value for our stockholders.
ü | Annual say-on-pay stockholder vote |
ü | Emphasis on performance-based compensation |
ü | 81% of target CEO pay in 2018 was variable and at risk |
ü | Non-guaranteed performance-based annual cash bonuses |
ü | Challenging performance targets under annual cash bonus plan and long-term stock-based compensation plan based on return on invested capital and, since 2017, relative earnings per share growth targets |
ü | Multi-year vesting periods for annual stock awards |
ü | Limit on maximum incentive payouts |
ü | No excise tax gross-up under severance agreements (subsequent to 2013) or under our Executive Severance Policy |
ü | No repricing of any stock options without stockholder approval |
ü | Clawback policy that applies to executive officer incentive-based compensation |
ü | Policies prohibiting hedging and pledging Hexcel stock by executive officers |
ü | Robust stock ownership guidelines for executive officers |
ii | HEXCEL CORPORATION | 2019 Proxy Statement |
Who is entitled to vote at the Annual Meeting?
You will be eligible to vote your shares of common stock at the Annual Meeting if you were a stockholderholder of recordour common stock at the close of business on March 9, 2017. As of that date, 90,772,110 shares of common stock were issued and outstanding and such shares were held by 653 holders of record. The holders of 45,386,056 shares will constitute a quorum at13, 2019, the meeting.
record date. Each share of common stock that you hold will entitle you to cast one vote with respect to each matter that will be voted on at the Annual Meeting. All
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
If your shares are registered directly in your name with our transfer agent, American Stock Transfer and Trust Company LLC, you are considered the stockholder of record or a “record holder” with respect to those shares, and you may submit a proxy card and vote those shares in the manner described in this proxy statement.
Most of our stockholders hold their shares as a beneficial owner through a broker, bank or other nominee rather than directly in their own name. If your shares are held through a broker, bank or other nominee, you are considered the “beneficial owner” of the shares. As the beneficial owner, you generally have the right to direct your broker, bank or other nominee on how to vote your shares. Your broker, bank or other nominee is responsible for providing you with a voting instruction form that you use to give instructions as to how your shares are represented by effective proxies that we receive in time to be voted shall be voted at the Annual Meeting. voted.
How do I vote?
Voting by proxy
If you direct how your votes shall be cast, shares will be voted in accordance with your directions. Ifwere a record holder on the record date, you returncan vote by returning a signed proxy and do not otherwise instructcard that provides your instructions as to how to vote on the proposals, then the shares represented by your proxy will be voted:
for each of the director candidates nominated by the board,
for approval of the company’s 2016 executive compensation,
in favor of our recommendation on the frequency of conducting an annual advisory vote on executive compensation,
in favor of the ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for 2017, and
in the discretion of the proxy holders on any other matters that may come before the Annual Meeting.
If you return a signed proxy with abstentions, your shares will be included in determining if a quorum is present.
A brokernon-vote occurs when a stockholder who holds his or her shares through a bank or brokerage firm does not instruct that bank or brokerage firm how to vote the shares and, as a result, the broker is prevented from voting the shares held in the stockholder’s account on certain proposals. Under applicable NYSE rules, if you hold your shares through a bank or brokerage firm and your broker delivers the Notice of Internet Availability or the printed proxy materials to you, the broker has discretion to vote on “routine” matters only. Of the matters to be voted on as described in this proxy statement, only the ratification of the selection of our independent registered public accounting firm is considered “routine” and therefore eligible to be voted on by your bank or brokerage firm without instructions from you. If you sign and return a voting instruction card to your broker, your shares will be voted as you instruct on the proposals described in this proxy statement and any other matters on which the proxy holder may properly vote. Shares subject to a brokernon-vote will be included in determining if a quorum is present.
We will pay all costs of preparing, assembling, printing and distributing the proxy materials. We have retained Morrow Sodali LLC, 470 West Avenue, Stamford, Connecticut, 06902, to assist in soliciting proxies for a fee of approximately $9,500, plus reasonableout-of-pocket expenses. Our employees may solicit proxies on behalf of our board through the mail, in person, and by telecommunications. We will request that brokers and nominees who hold shares of common stock in their names furnish proxy solicitation materials to beneficial owners of the shares, and we will reimburse the brokers and nominees for reasonable expenses they incur to do this.
If you give a proxy, you may revoke it at any time prior to the Annual Meeting by:voted.
mailing a revocation to Ms. Gail E. Lehman, the Secretary of the company, at the above address with a later date than any proxy you previously provided so long as it is received prior to the Annual Meeting;
submitting another properly completed proxy dated later than any proxy you previously provided so long as it is received by Ms. Lehman prior to the Annual Meeting;
by filing a written revocation at the Annual Meeting with Ms. Lehman; or
by casting a ballot at the meeting.
If you are an employee stockholder who holds shares through one of our benefit plans, you may revoke voting instructions given to the trustee for the applicable plan by following the instructions under “How to Vote Your Shares—Employee Stockholders” in this proxy statement.
Matters of Business, Votes Needed and Recommendations of the Board of Directors
Proposal 1—Election of Directors
Each outstanding share of our stock is entitled to one vote for as many separate nominees as there are directors to be elected. There are ten directors to be elected. The board has nominated Nick L. Stanage, Joel S. Beckman, Lynn Brubaker, Jeffrey C. Campbell, Cynthia M. Egnotovich, W. Kim Foster, Thomas A. Gendron, Jeffrey A. Graves, Guy C. Hachey and David L. Pugh for election to the board. Each of these ten nominees is currently a director of the company. Once a quorum is present, a majority of the votes cast in person or represented by proxy at the Annual Meeting and entitled to vote is required to elect each of the nominees for director. This means that each nominee must receive more votes “for” than “against” to be elected. Brokernon-votes and abstentions will be disregarded and will have no effect on the outcome of the vote.The board of directors recommends that you vote FOR the election of each of the board’s nominees for director.
Proposal 2—Advisory Vote to Approve Executive Compensation
Approval of the company’s 2016 executive compensation requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting once a quorum is present. In determining whether the proposal to approve 2016 executive compensation receives the required number of affirmative votes, abstentions will be counted and will have the same effect as a vote against the proposal. Brokernon-votes will be disregarded and will have no effect on the outcome of the vote. The vote is advisory andnon-binding; however, the compensation committee will consider the voting results among other factors when making future decisions regarding executive compensation.The board of directors recommends that you vote FOR the resolution approving the company’s 2016 executive compensation.
Proposal 3—Advisory Vote Regarding Frequency of Conducting an Advisory Vote on Executive Compensation
You may elect to have the vote on the frequency of conducting an advisory vote on executive compensation held annually, every two years or every three years, or you may abstain. You are not voting to approve or disapprove the board’s recommendation. Brokernon-votes will be disregarded and will have no effect on the outcome of the vote. The vote is advisory andnon-binding. The compensation committee will consider the outcome in recommending a voting frequency to the board of directors, but will not be bound either by its own recommendation or by the outcome of the vote, and may choose to conduct the vote more or less frequently in the future based on other factors, such as feedback from shareholder outreach programs, the adoption or revision of compensation policies, or the outcome of “Say on Pay” votes.The board of directors recommends that you vote FOR an ANNUAL shareholder advisory vote about compensation awarded to the company’s named executive officers.
Proposal 4—Ratification of Independent Registered Public Accounting Firm
Ratification of the appointment of Ernst & Young LLP to audit the company’s financial statements for 2017 requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting once a quorum is present. Abstentions will be counted and will have the same effect as a vote against the proposal. The audit committee is responsible for appointing the company’s independent registered public accounting firm. The audit committee is not bound by the outcome of this vote but, if the appointment of Ernst & Young LLP is not ratified by stockholders, the audit committee will reconsider the appointment.The board of directors recommends that you vote FOR the ratification of the selection of Ernst & Young LLP as the company’s independent registered public accounting firm for 2017.
Voting shares you hold through a broker, bank or other nominee
If you holdwere a beneficial owner of shares through someone else, such as a stockbroker,at the close of business on the record date, you may vote your shares by giving voting instructions to your broker, bank or
other nominee. Your broker, bank or other nominee you will receive material fromshould provide a voting instruction form that firm asking you for instructions onexplains how you want them tomay vote your shares. You canshould complete that firm’s voting instruction form and return it as requested by the firm. If the firm offers Internetinternet or telephone voting is offered, the voting instruction form willshould contain instructions on how to vote using those methods.
If you plan to attend the meeting
Please note that attendance will be limited to stockholders as of the record date. Admission will be on a first-come, first-served basis. If you attend the Annual Meeting, you will need to present valid picture identification, such as a driver’s license or passport. If you hold your shares through someone else, such as a stockbroker, bank or other nominee, you will need to show a brokerage statement or account statement reflecting your stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be
permitted at the Annual Meeting. You may contact Morrow Sodali LLC at(800) 607-0088 to obtain directions to the site of the Annual Meeting. The doors to the meeting will open at 10:00 a.m. local time and the meeting will begin at 10:30 a.m. local time.
Voting in person
If you are a registered stockholder,record holder, you may vote your shares in person by ballot at the Annual Meeting. You should indicate that you plan to attend the Annual Meeting when submitting your proxy card by checking the box under the caption “Meeting Attendance” on the proxy card. Even if you plan to attend the meeting, we urge you to submit a proxy card so that your vote will be recorded in the event that you are unable to attend.
If you hold your shares inare a stock brokerage account or through a bank or other nominee,beneficial owner, you will notneed an admission ticket or proof of ownership to be ableadmitted to vote in person at the Annual Meeting unless you have previously requested and obtained a “legal proxy”Meeting. A recent brokerage statement or letter from your broker, bank or other nominee and present itare examples of proof of ownership. If you want to vote the shares you hold as a beneficial owner in person at the Annual Meeting, along withyou must bring a properly completed ballot.signed proxy from your broker, bank or other nominee giving you the right to vote the shares.
Employee stockholders
If you hold shares through our Employee Stock Purchase Plan or ourtax-deferred 401(k) savings plan, you will receive a separate voting instruction form to instruct the custodian or trustee for the applicable plan as to how to vote your shares. With respect to the 401(k) savings plan, all shares of common stock for which the trustee has not received timely instructions shallwill be voted by the trustee in the same proportion as the shares of common stock for which the trustee received timely instructions, except if that would beunless inconsistent with the provisions of Title I of ERISA.applicable law. With respect to our Employee Stock Purchase Plan, we consider all shares of common stock for which the custodian has not received timely instructions not present for quorum purposes, and those shares will not be voted by the custodian.
HEXCEL CORPORATION | 2019 Proxy Statement | iii |
Inspectors2019 PROXY STATEMENT SUMMARY
What does it mean if I receive more than one proxy card or voting instruction form?
If your shares are held in more than one account, you will receive a proxy card or voting instruction form for each account. To ensure that all of Electionyour shares are voted, please follow the instructions you receive for each account to submit a proxy card or voting instruction form.
What is required in order to attend the Annual Meeting?
In accordance with our security procedures, admission to the Annual Meeting is restricted to record holders and beneficial owners of Hexcel stock as of the record date, March 13, 2019. If you are a record holder, indicate that you plan to attend the Annual Meeting when submitting your proxy card by checking the box under the caption “Meeting Attendance” on the proxy card. If you are not a record holder, or if you are a record holder and have not submitted your proxy card or did not indicate on your submitted proxy card that you plan to attend the Annual Meeting, please contact the office of the Corporate Secretary at Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901; facsimile number (203) 358-3972 to request an admission ticket. If you do not have an admission ticket, you must present proof of ownership in order to be admitted to the Annual Meeting. All stockholders attending the Annual Meeting must also present a valid government-issued photo identification, such as a driver’s license or passport, to gain entry to the Annual Meeting. Cameras, recording devices and other electronic devices are not permitted at the Annual Meeting. You may contact Morrow Sodali LLC at (800) 607-0088 to obtain directions to the site of the Annual Meeting. The doors to the meeting will open at 10:00 a.m. local time and the meeting will begin at 10:30 a.m. local time.
How does the board of directors recommend that I vote?
The board recommends that you vote:
n | FORthe election of the nine director nominees; |
n | FORthe approval, on an advisory basis, of the company’s 2018 executive compensation; |
n | FORthe approval of an amendment to the Hexcel Corporation 2013 Incentive Stock Plan; and |
n | FORthe ratification of Ernst & Young LLP as our independent registered public accounting firm for 2019. |
What if I return my proxy card but do not vote for all of the proposals?
All shares that are represented by a properly completed proxy card that we receive in time to be voted will be voted at the Annual Meeting. The persons designated on the proxy card as “proxies” (the “proxy holders”) will vote all shares covered by the proxy card in accordance with your instructions on the proxy card. If no instructions are given, the proxy holders will vote the shares in accordance with the board’s recommendations.
If any other matter properly comes before the Annual Meeting, the proxy holders will vote the shares in their discretion. If any director nominee becomes unavailable for election for any reason prior to the vote at the Annual Meeting, the board may reduce the number of directors to be elected or substitute another person as nominee, in which case the proxy holders will vote for the substitute nominee.
What is a “broker non-vote”?
A broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. Under New York Stock Exchange (“NYSE”) rules, brokers are not permitted to vote on the election of directors, the advisory vote on the compensation of our named executive officers or the amendment to the Hexcel Corporation 2013 Incentive Stock Plan; therefore, if your shares are held by a broker, you must provide voting instructions if you want your broker to vote on these matters.
Can I vote by telephone or over the internet?
If you are a record holder, you can vote by returning a signed proxy card, providing instructions as to how your shares will be voted, or vote by ballot at the Annual Meeting. Telephone and internet voting is not available for record holders. If you are a beneficial owner, you should receive material from your broker, bank or other nominee asking you for instructions on how you want them to vote your shares. If the firm offers internet or telephone voting, the voting instruction form should contain instructions on how to vote using one of those methods.
iv | HEXCEL CORPORATION | 2019 Proxy Statement |
2019 PROXY STATEMENT SUMMARY
How do I revoke a proxy?
If you are a record holder and have provided a proxy, you may revoke it at any time prior to the Annual Meeting by:
n | mailing a revocation to our Corporate Secretary at Hexcel Corporation, Attention: Corporate Secretary, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, with a later date than the date of any proxy you previously provided, so long as the revocation is received by our Corporate Secretary prior to the Annual Meeting; |
n | submitting another properly completed proxy dated later than the date of any proxy you previously provided, so long as it is received by our Corporate Secretary prior to the Annual Meeting; |
n | filing a written revocation at the Annual Meeting with our Corporate Secretary; or |
n | casting a ballot at the Annual Meeting. |
If you are a beneficial owner, you should contact your broker, bank, or other nominee for instructions on how to revoke your proxy or change your vote. If you are an employee stockholder who holds shares through one of our benefit plans, you should contact the trustee or custodian for instructions on how to revoke your proxy or change your vote.
What are the quorum and vote requirements?
A quorum of stockholders is necessary to hold a valid Annual Meeting. A quorum will exist if a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting are present in person or by proxy at the Annual Meeting. As of the record date, March 13, 2019, 84,868,544 shares of common stock were issued and outstanding. The holders of 42,434,273 shares will constitute a quorum at the meeting.
The following table indicates the vote required for approval of each matter to be presented to the stockholders at the Annual Meeting and the effect of abstentions and broker non-votes.
Required Vote | Effect of Votes, Abstentions and Broker Non-Votes | |||
Proposal 1 — Elect nine directors | Number of votes cast “for” the nominee must exceed the number of votes cast “against” that nominee. | Abstentions and broker non-votes will have noeffect on the voting for this matter. | ||
Proposal 2 — Approve, on an advisorybasis, 2018 executivecompensation | Affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote. | Abstentions will have the effect of a vote“against.” Broker non-votes will have no effecton the voting for this matter. | ||
Proposal 3 — Approve an amendmentto the Hexcel Corporation2013 Incentive Stock Plan | Affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote. | Abstentions will have the effect of a vote“against.” Broker non-votes will have no effecton the voting for this matter. | ||
Proposal 4 — Ratify the appointment ofErnst & Young LLP as independent registered public accounting firm for 2019 | Affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote. | Abstentions will have the effect of a vote“against.” There should be no broker non-votessince brokers are permitted to vote on thisproposal, even if they have not received votinginstructions from the beneficial owners. |
How may the company solicit my proxy?
We will pay all costs of preparing, assembling, printing and distributing the proxy materials. We have retained Morrow Sodali LLC, 470 West Avenue, Stamford, Connecticut 06902, to assist in soliciting proxies for a fee of approximately $10,000, plus reasonable out-of-pocket expenses. Our employees may solicit proxies on behalf of our board through the mail, in person, by telephone or by other forms of electronic communication, without additional compensation. We will reimburse brokers, banks and other nominees who hold shares of
common stock in their names for the expenses of furnishing proxy materials to beneficial owners of the shares.
How will the votes at the Annual Meeting be tabulated?
At the Annual Meeting, Morrow Sodali will count the votes.tabulate all votes cast in person or by proxy. Its officers or employees will serve as inspectors of election.
PROPOSAL 1—ELECTION OF DIRECTORS
HEXCEL CORPORATION | 2019 Proxy Statement | v |
2019 PROXY STATEMENT SUMMARY
Where will I find the voting results on the proposals presented at the Annual Meeting?
We intend to announce the preliminary voting results at the Annual Meeting. We will publish the final voting results in a Current Report on Form 8-K that we will file with the U.S. Securities and Exchange Commission (“SEC”), generally within four business days following the Annual Meeting.
Several stockholders live at my address. Why did we receive only one set of proxy materials?
We typically deliver only one annual report and one proxy statement to multiple stockholders at the same address, unless we have received contrary instructions from one or more of the stockholders. We will, upon written or oral request, promptly deliver a separate copy of the annual report or proxy statement to a stockholder at a shared address to which a single copy of the annual report or proxy statement was delivered. Record holders who wish to receive a separate annual report or proxy statement in the future, or record holders sharing an address who wish to receive a single copy of the annual report or proxy statement in the future, should notify our company’s Corporate Secretary at Hexcel Corporation, Attention: Corporate Secretary, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901. Beneficial owners who have the same address and wish to receive a separate copy of the annual report or proxy statement in the future should contact their broker, bank, or other nominee.
vi | HEXCEL CORPORATION | 2019 Proxy Statement |
At the 2017 annual meeting, tenAnnual Meeting, nine directors will be elected to hold office until the 2018 annual meeting2020 Annual Meeting of Stockholders and until their successors are duly elected and qualified. All nominees identified in this proxy statement for election to the board are currently serving as directors of the company.
Shares represented by an executed and returned proxy card will be voted for the election of each of the ten nominees recommended by the board, unless the proxy is marked against any nominee. If any nominee for any reason is unable to serve, the shares of common stock represented by the proxy card may, at the board’s discretion, be voted for an alternate person that the board nominates. We are not aware of any nominee who will be unable to or will not serve as a director. Each of the nominees has consented to being named in this proxy statement and to serve if elected.
Majority Voting Standard for Election of Directors
Our Amended and Restated Bylaws provide for a majority voting standard for the election of directors in uncontested elections. Under this standard, which will apply to the election of directors at the Annual Meeting, a director nominee will be elected only if the number of votes cast “for” that nominee exceeds the number of votes cast “against” that nominee. Brokernon-votes and abstentions will be disregarded and will have no effect on the outcome of the vote. EachIf a nominee who currently is serving as a director is not re-elected, Delaware law provides that the director will continue to serve on the board. However, each incumbent director nominee standing for re-election must submit an irrevocable resignation in advance of the stockholder vote regarding the election of directors. This addresses the situation in which there is a “holdover” director who has not received the required number of votes forre-election, but who, in accordance with Delaware law, remains on the board until his or her successor is elected
and qualified. The resignation is contingent upon both the nomineedirector not receiving the required vote forre-election and the board’s acceptance of the resignation, which the board, in its discretion, may reject if it deems such rejection to be in the best interest of the company.
Prior to the board’s determination to accept or reject the resignation, the nominating and corporate governance committee, composed entirely of independent directors, will make a recommendation to the board with respect to the tendered resignation. In its review, the committee will consider those factors deemed relevant to the determination, and whether the director’s resignation from the board would be in the best interest of the company and our stockholders.
The board must take action on the committee’s recommendation within 90 days following the meeting at which the election of directors occurred. An incumbent director whose resignation is the subject of the board’s determination is not permitted to participate in the deliberations or recommendationvotes of the committee or the board regarding the acceptance of the resignation.
In the case of contested elections (a situation in which the number of nominees exceeds the number of directors to be elected)elected, which is not the case with respect to the election of directors at the Annual Meeting), a plurality voting standard will apply.
HEXCEL CORPORATION | 2019 Proxy Statement | 1 |
PROPOSAL 1—Election of Directors
Information Regarding the Directors
All but one of our current directors have been nominated forre-election to the board. Dr. David HillL. Pugh has not been nominated forre-election because he has reached the age of 70 and, as stated in our corporate governance guidelines, it is no longer eligible to serve onour general policy that a director who has attained the board. Asage of 70 will not be nominated for re-election. Effective as of the date of the Annual Meeting, the number of directors will be reduced to ten.nine. The nominating and corporate governance committee considered the following attributes to concludein connection with its determination that our current directors other than Mr. Hill should continue to serve on our board: extensive familiarity with large-scale operations; industry expertise and professional relationships; the ability to utilize extensive past experience in management, finance, technology, and operations, and other areas to address issues we face on a recurring basis; collegiality and the ability to work together as a group; outstanding integrity and business judgment; and the ability to ask probing questions during board discussions and to carefully scrutinize significant business, financing and other proposals suggested by management. In addition to these factors, the committee also considered the respective attributes below:with respect to each nominee that are listed below that nominee’s biographical information:
NICK L. STANAGE |
NICK L. STANAGE,Chairman, Chief Executive Officer and President
Age:58, director since 60
Director Since:2013
Position, Principal Occupation, Business Experience and Directorships:
Mr. Stanage became a director and President andour Chief Executive Officer and President on August 1, 2013, and also became our Chairman of the Board on January 1, 2014. He has served as our President since November 2009, and also2009. Mr. Stanage served as our Chief Operating Officer from May 2012 until assuming the Chief Executive Officer position. Prior to joining Hexcel, Mr. Stanage was President of the Heavy Vehicle Products group (including both Commercial Vehicle Products and Off Highway Products) at Dana Holding Corporation from December 2005 to October 2009, and served as Vice President and General Manager of the Commercial Vehicle groupGroup at Dana from August 2005 to December 2005. From 1986 to 2005, Mr. Stanage held positions of increasing responsibility in engineering, operations and marketing with Honeywell Inc. (formerly AlliedSignal Inc.) including:. Among the positions held by Mr. Stanage at Honeywell were Vice President Integrated Supply Chain and Technology for the Consumer Products Group from 2003 to January 2005, and Vice President and General Manager of the Aerospace Group’s Engine Systems and Accessories Division from January 2005 to August 2005. Mr. Stanage began his career as a design engineer with Clark Equipment Company. Mr. Stanage also serves on the board of directors of TriMas Corporation, as well as on the audit, compensation, and corporate governance and nominating committees of TriMas.
Key Attributes, Experience and Skills:
Mr. Stanage has developed anin-depth understanding of the company’s business operations, growth opportunities and challenges and its customer and product base during his seven-year tenure as President, Chief Operating Officer and his current role as Chairman, Chief Executive Officer and President. His over 20 years’
management and operations experience at Dana Corporation and Honeywell provide him with critical expertise in the management, financial and operational requirements of a global manufacturing company.
Key Attributes, Experience and Skills: |
Mr. Stanage has developed an in-depth understanding of our company’s business operations, growth opportunities and challenges, as well as its customer and product base during his nine-year tenure with Hexcel. His over 20 years of management and operations experience at Dana and Honeywell provide him with substantial expertise in the management, strategy, financial and operational requirements of a global manufacturing company. |
JOEL S. BECKMAN |
JOEL S. BECKMANRetired Managing Partner,
Greenbriar Equity Group LLC, 61, director since
Age:63
Director Since:2003
Committees:Nominating and Corporate Governance, Finance (Chair)
Position, Principal Occupation, Business Experience and Directorships:
Mr. Beckman is a retired Managing Partner of Greenbriar Equity Group LLC, a private equity fund focused exclusively on making investments in transportation and transportation-related companies. Prior to founding Greenbriar in 2000, Mr. Beckman was a Managing Director and Partner of Goldman, Sachs & Co., which he joined in 1981. Mr. Beckman is on the board of a number of private companies, and is active in various civic organizations.
Key Attributes, Experience and Skills:
Mr. Beckman brings to his role on the board over 30 years’ experience as a banker and an investor in transportation (including aerospace) companies with both Greenbriar Equity Group and Goldman Sachs. In addition to Mr. Beckman’s valuable contributions related to the transportation sector, his experience in private equity led to his appointment
Key Attributes, Experience and Skills: |
Mr. Beckman brings to his role on the board over 30 years’ experience as an investment banker and an investor in transportation (including aerospace) companies. His experience in the transportation sector, together with his extensive experience in private equity, renders him well-qualified to serve as chair of our finance committee, a position he has held since January 2009, and has made him a key contributor to the board’s consideration of refinancing and capital structure matters. |
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PROPOSAL 1—Election of our finance committee and has made him a key contributor to refinancing and capital structure discussions since joining the board.Directors
LYNN BRUBAKER |
LYNN BRUBAKERRetired Vice President/General Manager
Honeywell International Inc., 59, director since
Age:61
Director Since:2005
Position, Principal Occupation, Business ExperienceCommittees:Audit, Nominating and Directorships:Corporate Governance (Chair)
Ms. Brubaker retired in 2005 from Honeywell International Inc. (which acquired AlliedSignal in 1999),2005, where she had most recently served as Vice President/General Manager—Commercial Aerospace. Ms. Brubaker has held a variety of executive leadership, operational management, strategy, business development and customer management roles in the aerospace industry.industry, including a variety of positions at AlliedSignal Inc. from 1996 until AlliedSignal acquired Honeywell in 1999. Prior to joining Allied Signal,AlliedSignal, Ms. Brubaker held management positions with McDonnell Douglas, Republic Airlines (acquired by Northwest Airlines), and ComAir. Ms. Brubaker has been a director of FARO Technologies, Inc. since July 2009, and serves on its audit, compensation, operating,operational audit, and nominating and corporate governance committees. Ms. Brubaker also serves as anon-executive director of QinetiQ Group plc, a British company withwhose shares are listed on the London Stock Exchange, and serves on its remuneration, audit, risk & CSR and nominating and corporate governancenominations committees. Ms. Brubaker also currently serves on the board of a private aerospace company.
Key Attributes, Experience and Skills: |
Ms. Brubaker has over 40 years of experience in the aviation and aerospace industries, as well as over 17 years’ experience serving on several boards of directors, and 14 years advising international, high technology and multi-industry companies. In particular, her extensive experience in a wide variety of capacities with the commercial aerospace, defense and space industries enables her to provide valuable insights to the board with respect to these industries. In addition, her ongoing aerospace industry involvement and relationships enable her to provide important insights as to customer feedback independent of management, and her expertise in sales and marketing management enables her to provide valuable observations with regard to our sales and marketing organization. Ms. Brubaker’s extensive contacts within key markets for Hexcel, as well as her experience on the boards of other companies, make her well suited to chair our nominating and corporate governance committee, a position she has held since January 2014. |
JEFFREY C. CAMPBELL |
Key Attributes, ExperienceExecutive Vice President and Skills:Chief Financial Officer
American Express Company
Ms. Brubaker is a seasoned executive with over thirty-eight years’ experience in the aviation
Age:58
Director Since:2003 (Lead Director)
Committees:Audit (Chair), Nominating and aerospace industries, as well as over fifteen years’ experience serving on various boards of directors, and 12 years advising international, high technology and multi-industry companies. Her extensive experience in the commercial aerospace, defense and space industries, in a wide variety of roles, makes her a valuable contributor to the board of Hexcel. Ms. Brubaker’s aerospace experience runs the gamut from operator to original equipment manufacturer to aftermarket parts and service provider. Her ongoing aerospace industry involvement and relationships provide the board with additional customer feedback independent of management. In addition, Ms. Brubaker has used her expertise in sales and marketing management to assess and advise our marketing and sales teams. Ms. Brubaker’s extensive contacts within key markets for Hexcel, as well as her experience on the boards of other companies, make her well-suited to lead our nominating and corporate governance committee.Corporate Governance
JEFFREY C. CAMPBELL, 56, director since 2003
Position, Principal Occupation, Business Experience and Directorships:
Mr. Campbell has served as Executive Vice President and Chief Financial Officer of the American Express Company, a global services company, since August 2013. From January 2004 to June 2013, he served as Executive Vice President and Chief Financial Officer of McKesson Corporation, a leading healthcare services, information technology and distribution company. Mr. Campbell was Senior Vice President and Chief Financial Officer of AMR Corp,Corp., the parent company of American Airlines, from June 2002 to December 2003, served as a Vice President of American Airlines from 1998 to June 2002 and held various management positions of American Airlines from 1990 to 1998. Earlier in his career, Mr. Campbell worked as a Certified Public Accountantcertified public accountant with Deloitte, Haskins & Sells from 1986 to 1988.
Key Attributes, Experience Mr. Campbell has been a director of Aon plc since March 2018, and Skills:
Asis a resultmember of Mr. Campbell’s extensive experience in financeits audit and accounting, including his current role as CFO of American Express, a $34 billion global services company,organization and his prior role as CFO of McKesson, a $100 billion healthcare services company, as well as over fifteen years in executive and management positions in the aerospace industry (American Airlines), he brings significant financial acumen to the board, providing valuable expertise and guidance in areas such as compliance, risk management, financing, investor relations and systems solutions. Mr. Campbell’s breadth and depth of experience in financial roles, including that of CFO of three multi-national, publicly traded companies, provides us with the financial expertise that is critical in the role of chair of the audit committee.compensation committees.
Key Attributes, Experience and Skills: |
Mr. Campbell’s extensive experience in finance and accounting, including his current role as Chief Financial Officer of American Express, and his prior role as Chief Financial Officer of McKesson, as well as over 13 years in executive and management positions in the commercial aviation industry, enable him to provide significant financial expertise to the board, particularly in areas such as compliance, risk management, financing, investor relations and systems solutions, and renders him well-qualified to serve as chair of the audit committee, a position he has held since May 2008. Mr. Campbell’s proven management expertise and tenure on the board led to his appointment as lead director in July 2018. |
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PROPOSAL 1—Election of Directors
CYNTHIA M. EGNOTOVICH |
CYNTHIA M. EGNOTOVICHRetired President, Aerospace Systems Customer Service
United Technologies Corporation, 59, director since
Age:61
Director Since:2015
Committees:Audit
Position, Principal Occupation, Business Experience and Directorships:
Ms. Egnotovich served as President, Aerospace Systems Customer Service of United Technologies Corporation (“UTC”) from July 2012 to November 2013. Previously, Ms. Egnotovich served as Segment President, Nacelles and Interior Systems for Goodrich Corporation (which was acquired by UTC)UTC in July 2012) from 2007 to 2012. Ms. Egnotovich joined Goodrich in 1986 and held leadership roles of increasing significance, including serving as Segment President of Engine Systems, Segment President of Electronic Systems and Segment President of Engine & Safety Systems. Ms. Egnotovich served as a director of The Manitowoc Company from 2008 to 2016, where she was a member of its audit committee and served as the chair of its compensation committee. In February 2016, she became a director and chairpersonchairwoman of the board of The Manitowoc Food Service Company, a spinoff of The Manitowoc Company.
Key Attributes, Experience and Skills:
Company, subsequently renamed Welbilt, Inc. Ms. Egnotovich bringscontinues to be the Hexcelchairwoman of Welbilt’s board almost thirty years’ experience in the aerospace industry, muchand also serves as chair of which was in senior leadership roles. Ms. Egnotovich has significant experience overseeing and assessing the performance of companies, as well as their accountants, which makes her well-suited to serve on our auditits governance committee. In addition, Ms. Egnotovich is able to offer the board a different perspective based on her experience as a director of a publicly traded manufacturing company outside of the aerospace industry.
Key Attributes, Experience and Skills: |
Ms. Egnotovich brings to the Hexcel board almost 30 years of experience in the aerospace industry, much of which involved senior leadership roles. Ms. Egnotovich has significant experience overseeing and assessing the performance of companies, as well as their accountants, which makes her well suited to serve on our audit committee. In addition, Ms. Egnotovich provides to the board a useful manufacturing perspective, based on her experience as a director of a publicly traded manufacturing company outside of the aerospace industry. |
THOMAS A. GENDRON |
W. KIM FOSTERChairman, Chief Executive Officer and President
Woodward, Inc.
Age:58
Director Since:2010
Committees:Compensation (Chair), 68, director since 2007, Lead Director
Position, Principal Occupation, Business Experience and Directorships:
From 2001 until October 2012, Mr. Foster served as Executive Vice President and Chief Financial Officer of FMC Corporation, a chemical manufacturer serving various agricultural, industrial and consumer
markets. Prior to serving in this role, Mr. Foster held numerous other executive and management positions with FMC, including Vice President and General Manager—Agricultural Products Group from 1998 – 2001; Director, International, Agricultural Products Group from 1996-1998; General Manager, Airport Products and Systems Division, 1991-1996; and Program Director, Naval Gun Systems, FMC Defense Group, from 1989 to 1991. Mr. Foster has been a director of Teleflex, Inc. since May 2013 and serves as the chair of its audit committee.
Key Attributes, Experience and Skills:
Mr. Foster has over 30 years’ management, operations and finance experience with FMC Corporation, including over eleven years as CFO, as well as experience as a director of another public company. He provides expertise and advice in the finance and investor relations areas, and his background in chemical operations has proven valuable in connection with discussions of capital spending and global sourcing. Mr. Foster’s many years of managing a large and geographically dispersed finance organization, his experience as the CFO of a publicly-traded company and his tenure as a member of the board of Hexcel led his fellow directors to appoint him as Lead Director starting in January 2014.Finance
THOMAS A. GENDRON, 56, director since 2010
Position, Principal Occupation, Business Experience and Directorships:
Mr. Gendron has been Chairman, Chief Executive Officer and President of Woodward, Inc., a designer, manufacturer and service provider of energy control and optimization solutions used in global infrastructure equipment, serving the aerospace, power generation and distribution and transportation markets, since 2007. Mr. Gendron wasHe previously served Woodward as President and Chief Executive Officer of Woodward from 2005 to 2007 and as President and Chief Operating Officer from 2002 to 2005. Prior to becoming President of Woodward, Mr. Gendron served in a variety of other management positions at Woodward.
Key Attributes, Experience and Skills:
Mr. Gendron’s experience as president and CEO
Key Attributes, Experience and Skills: |
Mr. Gendron’s experience as Chief Executive Officer and President of Woodward includes extensive operations and marketing experience in the aerospace and wind power industries, by virtue of Woodward’s global aircraft and wind turbine controls business. Mr. Gendron’s experience enables him to provide valuable insights regarding the aerospace and wind power industries, including marketing strategies. In addition, Mr. Gendron’s significant manufacturing management experience enables him to provide useful observations regarding our manufacturing operations. His experience in evaluating compensation programs as Woodward’s Chief Executive Officer renders him well-qualified to serve as chair of the compensation committee, and he has served in that capacity since May 2016. |
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PROPOSAL 1—Election of Woodward, a NASDAQ-listed company, includes extensive operations and marketing experience in the aerospace and wind power industries. Woodward’s global aircraft and wind turbine controls business enables Mr. Gendron to provide the board with insight as to the aerospace and wind power industries, and offer guidance on the development of marketing strategies. In addition, Mr. Gendron’s significant manufacturing management experience makes him well-suited to advise our operations team. His experience evaluating compensation programs as a CEO led to his appointment as chair of the compensation committee in 2016.Directors
JEFFREY A. GRAVES |
JEFFREY A. GRAVESChief Executive Officer and President
MTS Systems Corporation, 55, director since
Age:57
Director Since:2007
Committees:Compensation, Finance
Position, Principal Occupation, Business Experience and Directorships:
Since May 2012, Dr. Graves has served as Chief Executive Officer, President and Presidenta director of MTS Systems Corporation, a leading global supplier of test systems and industrial position sensors. From 2005 until May 2012, Dr. Graves served as President and Chief Executive Officer of C&D Technologies, Inc., a producer of electrical power storage systems. From 2001 to 2005 he was employed by Kemet Corporation as Chief Executive Officer (2003 to 2005)(2003-2005); President and Chief Operating Officer (2002-2003); and Vice President of Technology and Engineering (2001-2002). From 1994 to 2001, Dr. Graves was employed by the General Electric Company, holding a variety of management positions in GE’s Power Systems division from 1996 to 2001, and in theGE’s Corporate Research and Development Center from 1994 to 1996. Prior to General Electric,Earlier, Dr. Graves was employed by Rockwell International and Howmet Corporation, now a part of Alcoa Corporation. Dr. Graves is
alsoSince 2017, he has been a member of the board of directors of MTS Systems CorporationFARO Technologies, Inc. and Teleflex, Inc. Dr. Graves serves on Teleflex’sits audit, compensation committee.and governance and nominating committees. He was a member of the board of directors of C&D Technologies, Inc. from 2005 through 2012.
Key Attributes, Experienceuntil 2012, and Skills:
Dr. Graves has more than ten years’ experience as a CEO of three NYSE-listed companies and substantial experience as a director of other US public companies. Dr. Graves has significant global operations and R&D experience, including with GE,Teleflex Incorporated from 2007 until 2017. He holds a PhD in Materials Science and has extensive prior involvement in materials development and application processes for airframe, propulsion systems and energy fields. In addition to the obvious value as an experienced CEO of three public companies, Dr. Graves was recruited to the board to help provide additional technical expertise. He has extensive experience doing business in China and India, enabling him to provide valuable contributions to discussions related to our Asia Pacific strategy, particularly with respect to industrial markets. Dr. Graves regularly reviews our R&D programs and organization and reports back to the board his findings and recommendations. In addition, Dr. Graves has advised on information technology projects based on his past experience with the implementation of enterprise resource planning systems.
Key Attributes, Experience and Skills: |
Dr. Graves’ extensive experience in executive and management roles with companies engaged in manufacturing and development enables him to share valuable perspectives on manufacturing, engineering, operations and finance matters. Dr. Graves provides valuable insights with respect to our global marketing efforts and strategic initiatives as a result of his significant experience with respect to international market development, particularly in China and India. Moreover, Dr. Graves’ PhD in Materials Science, with extensive experience in aerospace airframes and propulsion, together with his research and development experience, enables him to make significant contributions to the board’s assessment of our research and technology programs and information technology. In particular, he participates in our annual research and technology strategy meeting and provides an assessment to the board on the strategic direction of our product and technology development. Finally, his experience in energy storage facilitates robust discussion by the board on new market opportunities with alternative energy. |
GUY C. HACHEY |
GUY C. HACHEY,61, director since Retired President and Chief Operating Officer
Bombardier Aerospace, Inc.
Age: 63
Director Since:2014
Committees:Compensation
Position, Principal Occupation, Business Experience and Directorships:
From May 2008 to July 2014, Mr. Hachey served as President and Chief Operating Officer of Bombardier Aerospace, Inc. Prior to joining Bombardier in 2008, Mr. Hachey held numerous roles with Delphi Corporation, including the combined positions of Vice President, Delphi Corporation and President, Delphi Europe, Middle East and Africa, as well as Executive Champion for Delphi’s global manufacturing operations. Mr. Hachey began his career in 1978 with General Motors Corporation, where he held manufacturing and engineering leadership positions in Canada and the U.S.
Key Attributes, Experience and Skills:
Mr. Hachey’s six years’ experience as the President and Chief Operating Officer of a major aircraft manufacturer enables him to provide critical insight into Hexcel’s aerospace product offerings across the globe. In addition, Since January 2019, Mr. Hachey has significant experience overseeing global automotive manufacturing businesses and is able to offer a valuable perspective to discussions regarding our manufacturing operations, global manufacturing footprint, and industrial markets.
DAVID L. PUGH, 68, director since 2006
Position, Principal Occupation, Business Experience and Directorships:
Mr. Pugh served as the Chairman and Chief Executive Officer of Applied Industrial Technologies Inc., one of North America’s leading industrial product distributors, from October 2000 until October 2011. He was President and Chief Operating Officer of Applied from January 1999 to January 2000 and President and Chief Executive Officer of Applied from January 2000 to October 2000. Prior to joining Applied, Mr. Pugh was senior vice president of Rockwell Automation and general manager of Rockwell’s Industrial Control Group. Prior to joining Rockwell, Mr. Pugh held various sales, marketing and operations positions at Square D. Co. and Westinghouse Electric Corp. Mr. Pugh is alsobeen a member of the board of directors of NN, Inc.Meggitt PLC, a British company whose shares are listed on the London Stock Exchange, and is a member of its audit, remuneration and nominations committees.
Key Attributes, Experience and Skills: |
Mr. Hachey’s six years’ experience as the President and Chief Operating Officer of a major aircraft manufacturer enables him to provide valuable insights with regard to Hexcel’s aerospace product offerings throughout the world. In addition, Mr. Hachey’s significant experience in overseeing global automotive manufacturing businesses enables him to provide valuable perspectives regarding our manufacturing operations and industrial markets. |
HEXCEL CORPORATION | 2019 Proxy Statement | 5 |
PROPOSAL 1—Election of Directors
CATHERINE A. SUEVER |
Executive Vice President – Finance and Administration and Chief Financial Officer
Parker Hannifin Corporation
Age:60
Director Since:2018
Committees:Audit
Ms. Suever has served as Executive Vice President—Finance and Administration and Chief Financial Officer of Parker Hannifin Corporation, a leading worldwide manufacturer of motion and control technologies and systems, since April 2017. Ms. Suever joined Parker Hannifin in 1987 and has held roles of increasing responsibility since, including Vice President and Corporate Controller from 2010-2017; Vice President and Controller, Climate & Industrial Controls Group from 2008-2010; Assistant Treasurer in 2007; and Director, Finance and Investor Relations Support in 2006. She has also served Parker Hannifin as Manager of External
Reporting and as a Division Controller and Business Unit Manager for its Gas Turbine Fuel Systems Division. Ms. Suever serves on its auditthe Board of Trustees for the National Multiple Sclerosis Society’s Ohio Buckeye Chapter. She is also a member of the CFO Council of the Manufacturers Alliance for Productivity & Innovation (MAPI), the American Institute of Certified Public Accountants (AICPA), and compensation committees.
Key Attributes, Experience and Skills:
Mr. Pugh was CEO of an NYSE-listed company for eleven years until his retirement in 2011. Throughout his career, he gained extensive operations and sales and marketing experience in large-scale global manufacturing organizations; and extensive experience as a director of public companies. Mr. Pugh’s expertise in factory control systems and equipment maintenance programs has provided valuable expertise to the board and to our operations management team. Mr. Pugh brings important perspectives in the executive compensation area to both the compensation committee and the board, as a result of his varied experiences with other public boards.Financial Executives International (FEI).
Key Attributes, Experience and Skills: |
Ms. Suever’s extensive experience in finance and accounting enables her to contribute significant financial acumen to the board and provide expertise and advice in compliance, risk management and finance. Moreover, her investor relations experience enables her to provide valuable perspectives regarding communications with the investor community. |
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR. |
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PROPOSAL 1—Election of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR
We currently have ten independent directors out of eleven directors.
Our board affirmatively determined that each director nominee, other than our Chief Executive Officer and President, Mr. Stanage, meetsis independent within the NYSE director independence requirements.meaning of the listing standards of the NYSE. In making these determinations ouraddition, the board considered whether a director has a “material relationship” with us as contemplated bydetermined that the members of the audit committee, compensation committee and nominating and corporate governance committee are independent within the meaning of the NYSE listing standards. Onenon-employee director has a relationship with us other than as a directorstandards, and that members of Hexcel.the audit and compensation committees meet the additional independence requirements of the NYSE applicable to audit committee and compensation committee members. In making its independence determinations, the board considered the following: Ms. Brubaker is a non-employee director of a private aerospace company that is our customer. In determining thatcustomer; Ms. Brubaker did not haveand Dr. Graves are both non-employee directors of a material relationship with us,company that is our supplier; Mr. Campbell is a non-employee director of a company that provides consulting services to us; and thus was independent, our board considered,Mr. Hachey is a non-employee director of a company that is both a customer and a supplier of ours. After considering, among other things, theour sales to this private aerospaceeach company that is a customer as a percentage of our total sales, our purchases of goods or services from each company that is a supplier or service provider as well asa percentage of such company’s total sales (or projected sales for 2018), and the fact that Ms. Brubaker, isMr. Campbell, Dr. Graves and Mr. Hachey are not an employeeemployed by the companies referenced above, the board concluded that our relationships with these companies do not impair Ms. Brubaker’s, Dr. Graves’, Mr. Campbell’s or Mr. Hachey’s independence. In making the independence determination with respect to Dr. Graves and Ms. Suever, the board considered that they are executive officers of this private aerospace company and doescompanies that are our suppliers. After considering, among other things, thede minimisamount of purchases we made from these companies as a percentage of their respective total sales, the board concluded that our relationships with these companies do not have any significant directimpair Dr. Graves’ or indirect pecuniary interest in the business relationship between us and this private aerospace company.Ms. Suever’s independence.
Meetings and Standing Committees of the Board of Directors
During 20162018, there were fivenine meetings of the board, and 2118 meetings and six actions by written consent in the aggregate of the four standing committees of the board. Each of the incumbent directors who served on the board and its committees during 20162018 attended or participated in at least 75% of the aggregate number of board meetings and applicable committee meetings held during 2016.2018. A director is expected to regularly attend and participate in meetings of the board and of committees on which the director serves, and to attend the annual meeting of stockholders. Each of the incumbent directors other than Mr. Foster attended the last annual meeting of stockholders.
The board has established the following standing committees: audit committee; compensation committee; finance committee; and nominating and corporate governance committee. The board may establish other special or standing committees from time to time. Members of committees serve at the discretion of the board. Each of our four standing committees operates under a charter adopted by the board. The charter for each committee except the finance committee requires that all members be independent as required by NYSE listing standards. The charter of the finance committee prohibits the committee from taking any action that is required by NYSE rules to be taken by a committee composed entirely of independent directors, unless the finance committee is composed entirely of independent directors. The finance committee is currently composed entirely of independent directors. Our board has also adopted a set of corporate governance guidelines. All committee charters and the corporate governance guidelines can be viewed onare available through the investor relations sectionInvestor Relations page of our website,www.hexcel.com,, under “Corporate Governance.” You may obtain a copy of any of these documents, free of charge, by directing your request to Hexcel Corporation, Attention: Vice President, Investor Relations, Manager, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901, telephone(203) 352-6826.
HEXCEL CORPORATION | 2019 Proxy Statement | 7 |
PROPOSAL 1—Election of Directors
The table below provides information regarding the current membership of each standing board committee and meetingthe number of meetings held during fiscal year 2016:2018:
Name | Audit | Compensation | Nominating and Corporate Governance | Finance | Audit | Compensation | Nominating and Corporate Governance | Finance | ||||
Joel S. Beckman | Ö | Chair | n | Chair | ||||||||
Lynn Brubaker | Ö | Chair | n | Chair | ||||||||
Jeffrey C. Campbell | Chair | Chair | n | |||||||||
Cynthia M. Egnotovich | Ö | n | ||||||||||
W. Kim Foster | Ö | Ö | ||||||||||
Thomas A. Gendron | Chair | Ö | Chair | n | ||||||||
Jeffrey A. Graves | Ö | Ö | n | n | ||||||||
Guy C. Hachey | Ö | n | ||||||||||
David C. Hill | Ö | Ö | ||||||||||
David L. Pugh | Ö | Ö | n | |||||||||
Catherine A. Suever | n | |||||||||||
Number of Meetings | 8 | 6 | 4 | 3 | 8 | 6 | 2 | |||||
Actions by Written Consent | 1 | — | 1 | 4 | — | 2 | 3 | 4 |
The audit committee assists with the board’sboard in its oversight of the integrity of our financial statements, our exposure to risk and mitigation of those risks, our compliance with legal and regulatory requirements, our independent registered public accounting firm’s qualifications, independence and performance, and our internal audit function. Additional information regarding the audit committee, including additional detail about the functions performed by the audit committee, is set forth in the Audit Committee Report included on page 6364 of this proxy statement.
All members of our audit committee meet the financial literacy requirements of the NYSE and at least one member has accounting or related financial management expertise as required by the NYSE. In addition, our board has determined that Jeffrey C. Campbell isand Catherine A. Suever are each an audit“audit committee financial expertexpert” under SEC rules.
The audit committee has adopted procedures for the receipt, retention and handling of concernscomplaints regarding accounting, internal accounting controls and auditing matters by employees, stockholders or other persons. Any person with such a concerncomplaint should report it to the board as set forth under “Contacting the Board” on page 15.11. The audit committee has also adopted procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
The audit committee has established policies and procedures for thepre-approval of all services provided by our independent registered public accounting firm. These policies and procedures are described on page 65 of this proxy statement.
The finance committee provides guidance to the board and management on significant financialfinance matters, including the company’s capital structure, credit facilities, equity and debt issuances, acquisitions, divestitures, liquidity, dividends and share repurchases, and insurance coverage.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee regularly seeks input from the board regarding the skills and attributes it believes new nominees should possess in order to strengthen the board; identifies and recommends to the board individuals qualified to serve as directors and on committees of the board; advises the
board with respect to board and committee procedures; develops and recommends to the board, and reviews periodically, our corporate governance principles; and oversees the evaluation of the board, the committees of the board and management. The nominating and corporate governance committee evaluates the board’s and each committee’s performance at least annually. In addition, eachthe nominating and corporate governance committee, in collaboration with the lead director, conducts an annual self-evaluation and we also conduct a peer review of individual directors every other year. The nominating and corporate governance committee has independent authority to select and retain anya search firm to assist it in identifying qualified candidates for board membership, and has the sole authority to approve the search firm’s fees and terms of engagement.
The
Under the charter of the nominating and corporate governance committee believes that each nomineeand our corporate governance guidelines, the nominating and corporate governance committee is responsible for assessing the appropriate balance of criteria required of board members and, in considering potential director should demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution tocandidates, will consider, among other things, the board’s supervisionbackground and oversightqualifications of our business and affairs. The committee also considers the following when selecting candidates for recommendation to the board: broad businesspotential director candidate, including knowledge,
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PROPOSAL 1—Election of Directors
experience, professional relationships, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, potential conflicts of interest and such other factors that the nominating and corporate governance committee considers appropriate in the context of the needs or stated requirements of the board.
We do not have a formal policy with regard to consideration of diversity in identifying director nominees. However, both the charter of the nominating and corporate governance committee and our corporate governance guidelines list diversity as one of many attributes and criteria that the committee will consider when identifying and recruiting candidates to fill positions on the board. Our corporate governance guidelines also state that our board should generally have no fewer than ten directors to permit diversity of experience. The committee considers a broad range of diversity, including diversity with respect to experience, skill set, areas of expertise and professional background, as well as race, gender and national origin. Our informal policy regarding consideration of diversity is implemented through discussions among the committee members, and by the committee with our outside search firm and with senior management. The committee assesses the effectiveness of this policy through its annual self-evaluation, a report of which is delivered to the board. Every board candidate search undertaken by us includes diversity as a desired attribute for the candidate.
The nominating and corporate governance committee will consider director candidates recommended by stockholders, as well as by other sources including ournon-management directors, our chief executive officer, and other executive officers. In considering candidates submitted by stockholders, the committee will take into consideration the needs of the board and the qualifications of the candidate. The company’s policy oncandidate, according to the consideration of all director candidates, regardless of source, iscriteria set forth in the charter of the nominating and corporate governance committee.above. To have a candidate considered by the committee, a stockholder must submit the recommendation in writing to our corporate secretarythe Corporate Secretary at the address listed below under “Contacting the Board” so that it is received at least 120 days prior to the anniversary date of our prior year’s annual meeting of stockholders. The stockholder must supply the following information with his or her recommendation:
The name and record address of the stockholder and evidence of the stockholder’s ownership of Hexcel stock, including the class and number of shares owned of record or beneficially by the stockholder or any of its affiliates or associates (and any other direct or indirect pecuniary or economic interest in Hexcel stock, such as any derivative instrument, swap, option, warrant, short interest, hedge or profit sharing arrangement) and the length of time the interest in the shares have been held
n | The name and record address of the stockholder and evidence of the stockholder’s ownership of Hexcel stock; and |
n | The name, age, business address and residence address of the candidate, a listing of the candidate’s qualifications to be a director, and the candidate’s consent to be named as a director if selected by the committee and nominated by the board. |
In connection with its evaluation, the nominating and corporate governance committee may request additional information from the candidate a listing ofor the candidate’s qualifications to be a director, and the person’s consent to be named as a director if selected by the committee and nominated by the board
An advance irrevocable resignation letter providing for the contingent resignation of the candidate in the event that the candidate is elected to the board and subsequently becomes a holdover director
The candidate’s written representation and agreement that the candidate (1) would be in compliance, if elected as a director of Hexcel, and will comply with, all applicable publicly disclosed confidentiality, corporate governance, conflict of interest, Regulation FD, code of conduct and ethics, and stock ownership and trading policies and guidelines of Hexcel, (2) is not and will not become a party to any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how the candidate, if elected as a director of Hexcel, will act or vote on any issue or question that has not been disclosed to Hexcel in the representation and agreement, and (3) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than Hexcel with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director of Hexcel without disclosing to Hexcel such agreement, arrangement or understanding
Any information about the stockholder and the candidate which would be required to be disclosed in a proxy statement or other filing relating to the election of directors
A representation that the stockholder intends to appear in person at the annual meeting to nominate the candidate
Any material interest of the stockholder or any of its affiliates or associates relating to the nomination of the candidate, including a description of all arrangements or understandings between the stockholder and the candidate
Whether any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) has been made by or on behalf of the stockholder or any of its affiliates or associates, the effect or intent of which is to mitigate loss to, or manage risk or benefit of share price changes for, the stockholder or any of its affiliates or associates or to increase or decrease the voting power or pecuniary or economic interest of the stockholder or any of its affiliates or associates with respect to Hexcel’s capital stock
A description of all arrangements or understandings between the stockholder or any of its affiliates or associates and any other person, naming such other person, relating to the recommendation of such candidate
recommending stockholder. The committee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although the board may take into consideration the number of shares held by a recommending stockholder and the length of time that such shares have been held. No stockholder recommendations were made for this Annual Meeting.stockholder.
The compensation committee defines the goals ofarticulates our compensation policy and principles, reviews and approves our compensation programs, including director compensation, and oversees our benefit plans. In this capacity,regard, the compensation committee oversees the administration of our incentive plans and may make grants, for example, ofnon-qualified stock options (“NQOs”), restricted stock units (“RSUs”) and performance-based share awards (“PSAs”) to executive officers, other key employees, directors and consultants.consultants; any such grants to Mr. Stanage are subject to the approval of our independent directors.
Additional information regarding the compensation committee, including additional detail about the objectives, policies processes and procedures of theprinciples regarding our compensation committee,program, and information with regard toconcerning the compensation consultant retained by the compensation committee (including a description of services provided by the consultant), is set forth in Compensationunder “Compensation Discussion and AnalysisAnalysis” beginning on page 2217 of this proxy statement.
As stated in our Corporate Governance Guidelines,corporate governance guidelines, we do not require separation of the offices of the Chairman of the Board and Chief Executive Officer. The board believes that it is appropriate for Mr. Stanage to hold both offices because the combined role enables decisive leadership and clear accountability and enhances our ability to communicate our strategy clearly and consistently to stockholders and other key constituencies, such as our employees and key customers and suppliers. We also believe we have in place sound counter-balancing mechanisms to ensureadditional board structure and oversight attributes that we maintain the highest standardsfacilitate our maintenance of a high standard of corporate governance and effective accountability of the CEO to the board, including the following:
n | Each of the other directors on the board is independent; |
n | The board has named a lead director, whose responsibilities are described below; |
HEXCEL CORPORATION | 2019 Proxy Statement | 9 |
EachPROPOSAL 1—Election of the other directors on the board is independentDirectors
The board has named a lead director, whose responsibilities are described in detail below
n | Mr. Stanage’s performance and compensation is reviewed, and his compensation is recommended, by the compensation committee, subject to approval by the independent directors as a group; |
n | The independent directors meet regularly in executive sessions without management; and |
n | The board regularly reviews performance, management development and succession plans for executive positions. |
Mr. Stanage’s performance and compensation is reviewed, and Mr. Stanage’s compensation is set, by the compensation committee, with formal oversight by the independent directors as a group
The independent directors meet regularly in executive sessions without management
The board regularly reviews performance, management development and succession plans for executive positions.
Our bylawsBylaws dictate that if the chairmanChairman of the board is independent, then the chairman will be the lead director or, if the chairmanBoard is not independent, as is the case with Mr. Stanage, then the independent directors are required to designate an independent board member to serve as lead director. The independent directors have designated Mr. FosterCampbell to serve as lead director. Mr. Foster has theIn addition to his authority to call a meeting of the independent directors, in addition toMr. Campbell has the responsibilities listed below:
Oversees the flow of information to the board
n | Oversees the flow of information to the board; |
n | Determines the annual master agenda for board meetings with input from management and other directors; |
n | Collaborates with the CEO to ensure that information and materials that are important to the board’s understanding of agenda items are sufficient in scope; |
n | Oversees the board’s performance evaluations of the CEO and provides feedback directly to the CEO; |
n | Collaborates with the nominating and corporate governance committee to conduct peer reviews of individual directors as part of the board’s evaluation process; |
n | Chairs executive sessions of the board and meets with the CEO to discuss matters of board concern; and |
n | Collaborates with the nominating and corporate governance committee in monitoring the composition and structure of the board. |
Determines the annual master agenda for board meetings with input from management and other directors
Collaborates with the CEO to assure that information and materials that are important to the board’s understanding of agenda items are sufficient in scope
Oversees the board’s performance evaluations of the CEO and provides feedback directly to the CEO
Conducts peer reviews of individual directors as part of the board’s evaluation process
Chairs executive sessions of the board and meets with the CEO to discuss matters of board concern
Collaborates with the nominating and corporate governance committee in monitoring the composition and structure of the board
Under our corporate governance guidelines, the independent directors are required to meet as a board in executive session, without management, a minimum ofat each regularly scheduled, in person board meeting, but no less than two times a year, but normally do so at every regular board meeting.
The board is responsible foractively involved in overseeing our risk management. Twice annually,The board, and each committee, regularly consider potential risks. In addition, we have an active enterprise risk management program, which is designed to measure, manage and aggregate risks on an enterprise-wide basis, and provides a systematic approach to risk assessment and mitigation. Under the enterprise risk management program, management identifies various risks facing the company and assesses such risks, taking into account the likelihood of occurrence and potential impact. Management is responsible for developing an action plan to eliminate, mitigate or monitor such risks. Management makes regular presentations to the board, no fewer than two times per year (and more frequently if circumstances warrant), regarding material risks facing the company, including internal risks related to our operations, strategy, financial condition, and employees, and external risks related to our markets, geographic locations, cybersecurity, regulatory environment, and macroeconomic outlook. At these meetings, the board discusses enterprise riskand reviews these risks, helps management definingdefine key risk and business continuity indicators, and stepsdetermines what, if any, additional actions should be taken to reduce identified risks, including risks related to manufacturing, technology and IT security.mitigate these risks. In addition, specificeach board committees arecommittee is responsible for overseeing specific types of risk. OurThe audit committee periodically reviews our currency exchange and hedging policies, tax exposures and our processes to ensure compliance with laws and regulations, and also reviews reports from our anonymous hotline that employees and third parties can use to report suspected violations of our Code of Business Conduct. The audit committee also regularly meets in executive sessionssession without management present with our outsourced internal audit firm and our independent registered public accounting firm to discuss areas of concern of which the board should be aware.concern. The finance committee addresses significant financing matters such as our capital structure, credit facilities, equity and debt issuances, acquisitions, divestitures, liquidity, dividends and share repurchases, and insurance programs.coverage. Our compensation committee establishes compensation policies and programs that do not incentivizeare designed to prevent incentivizing executives and employees to take on an inappropriate level of risk, as discussed under “The Process for Setting Compensation—Compensation Risk Oversight” on page 28 of this proxy statement.risk. The nominating and corporate governance committee is responsible for making recommendations to the board regarding succession planning for senior leadership positions. Each of our board committees delivers a report to the board, no later than the next scheduled board meeting, regarding matters considered at committee meetings that have taken place since the lastprevious board meeting.
Our senior management meets periodically with our functional leadership teams to discuss and review the risks that exist in connection with our business. Management makes regular presentations to the board, no fewer than two times per year (and more frequently if circumstances warrant), regarding all types
10 | HEXCEL CORPORATION | 2019 Proxy Statement |
PROPOSAL 1—Election of material risks facing the company. At these meetings the board discusses and reviews these risks and determines what, if any, new actions should be taken to mitigate these risks.Directors
At least annually, the board engages in a review of management developmentaldevelopment and succession planning to assess leadership development programsorganizational and organizationalleadership effectiveness, and conductsin-depth discussions regarding specific succession and contingency planning for all key senior leadership positions.
Stockholders and other interested parties may contact thenon-management members of the board or the lead director by sending their concerns to: Board of Directors, c/o Corporate Secretary, Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CTConnecticut 06901; facsimile number(203) 358-3972. The corporate secretaryCorporate Secretary will review all communications and forward them to the lead director. The corporate secretaryCorporate Secretary may, however, filter out communications that do not relate to our business activities, operations or our public disclosures, but will maintain a record of these communications and make them available to the lead director. Any communications received by the lead director regarding concerns relating to accounting, internal accounting controls or auditing matters will promptly be immediately brought to the attention of the audit committee and will be handled in accordance with the procedures established by the audit committee to address these matters.
It is our policy that all of our directors, officers directors and employees worldwide conduct our business in an honest and ethical manner and in compliance with all applicable laws and regulations. Our board has adopted the Hexcel Code of Business Conduct, in order to clarify, disseminate and enforce this policy. The Codewhich applies to all of our directors, officers directors and employees worldwide, includingand addresses in detail our chief executive officer, chief financial officer and controller.expectations with regard to conduct that fulfills our policy. The Code can be viewed on the investor relationsInvestor Relations section of our website,www.hexcel.com,, under “Corporate Governance.” In addition, you may obtain a free copy of the Code by directing your request to
Hexcel Corporation, Attention: Vice President, Investor Relations, Manager, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901, telephone(203) 352-6826.Connecticut 06901; or via email at InvestorRelations@Hexcel.com. Any amendment to the Code of Business Conduct (other than technical, administrative ornon-substantive amendments), or any waiver of a provision of the Code that applies to our directors or executive officers, will be promptly disclosed on the investor relationsInvestor Relations section of our website under “Corporate Governance.”
Director Compensation in 20162018
Ournon-employee director compensation program is comprised of a mix of cash and stock-based compensation designed to attract and retain qualified candidates to serve on our board. In May 2016,2018, the compensation committee performed its annual review of the director compensation program compared with survey data from the National Association of Corporate Directors. The review indicated that our director compensation remaineddirectors were compensated at competitive with compensationlevels for other similarly sized firms. The compensation committee therefore recommended no changes in 2016 to the annual director compensation.companies of our size.
Annualnon-employee director cash compensation consists of a retainer of $58,000$73,000 plus:
$25,000 for the lead director
$12,500 for the audit committee chair
$7,500 for the compensation committee chair
n | $25,000 for the lead director |
n | $10,000 for each member of the audit committee |
n | $7,500 for each member of the compensation committee |
n | $5,000 for each member of the nominating and corporate governance committee and the finance committee |
Each of the nominating and corporate governance committee and the finance committee chairs receives the following additional annual compensation:
n | $12,500 for the audit committee chair |
n | $7,500 for the compensation committee chair |
n | $5,000 for each of the nominating and corporate governance committee and the finance committee chairs |
HEXCEL CORPORATION | 2019 Proxy Statement | 11 |
$10,000 forPROPOSAL 1—Election of Directors
Under our non-employee director compensation program, each membernon-employee director is permitted to elect to receive RSUs in lieu of the audit committee (including the chair of the committee)
$7,500 for each member of the compensation committee (including the chair of the committee)
$5,000 for each member of the nominating and corporate governance committee and the finance committee (including the chairs of the committees)
Upontheir annual cash retainer to which they are entitled. In addition, upon initial election to the board and on eachre-election thereafter, eachnon-employee director receives a grant of RSUs in an amount determined by the compensation committee as guided byfollowing its receipt of the advice of its independent compensation consultant and its consideration of other relevant factors. The target grant date value of RSUs issued to directors in 20162018 was $105,000. TheNon-employee director RSUs vest daily over the twelve months following the date of grant and convert into an equalequivalent number of shares of our common stock on the first anniversary of grant unless the director elects to defer conversion and delivery of the shares underlying the RSUs until termination of service as a director.
In addition to the annual compensation described above, if a special committee is designated by the board, eachnon-employee director of thatwho serves on the special committee receives $1,000 for attendance at anyeach meeting of that committee.attended.
Our stock ownership guidelines, which are described on page 39,33, apply tonon-employee directors, as well as executive officers. All of ournon-employee directors, except Ms. Suever, who was elected as a director in May 2018, are in full compliance with the policy, except for Mr. Hachey and Ms. Egnotovich who were elected to the board in October 2014 and January 2015, respectively.
The table below summarizes the compensation paid by the company tonon-employee directors for the fiscal year ended December 31, 2016.2018.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | |||||||||
Joel S. Beckman | 73,000 | 104,999 | 177,999 | |||||||||
Lynn Brubaker | 78,000 | 104,999 | 182,999 | |||||||||
Jeffrey C. Campbell | 80,500 | 104,999 | 185,499 | |||||||||
Cynthia M. Egnotovich | 68,000 | 104,999 | 172,999 | |||||||||
W. Kim Foster | 95,500 | 104,999 | 200,499 | |||||||||
Thomas A. Gendron | 75,421 | 104,999 | 180,420 | |||||||||
Jeffrey A. Graves | 68,000 | 104,999 | 172,999 | |||||||||
Guy C. Hachey | 65,500 | 104,999 | 170,499 | |||||||||
David C. Hill | 73,000 | 104,999 | 177,999 | |||||||||
David. L. Pugh | 71,360 | 104,999 | 176,359 |
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2)(3) | Total ($) |
Joel S. Beckman | 88,000 | 104,983 | 192,983 |
Lynn Brubaker | 93,000 | 104,983 | 197,983 |
Jeffrey C. Campbell | 107,644 | 104,983 | 212,627 |
Cynthia M. Egnotovich | 83,000 | 104,983 | 187,983 |
W. Kim Foster(4) | 84,685 | 104,983 | 189,668 |
Thomas A. Gendron | 93,000 | 104,983 | 197,983 |
Jeffrey A. Graves | 85,421 | 104,983 | 190,404 |
Guy C. Hachey | 80,493 | 104,983 | 185,476 |
David. L. Pugh(5) | 85,500 | 104,983 | 190,483 |
Catherine A. Suever | 54,917 | 104,983 | 159,900 |
(1) | The amounts in this column represent the fees that were earned or paid in cash plus the grant date fair value of |
2018. | ||||
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As of December 31, 2018, each of our non-employee directors held 1,605.23 RSUs that were not yet eligible for conversion, excluding RSUs that a director elected to receive in lieu of the director’s annual cash retainer as disclosed in footnote 1 above, and RSUs for which a director has elected to defer conversion and delivery until termination of his or her service with the board. These RSUs include RSUs provided as dividend equivalents that are accrued with respect to outstanding RSUs when we pay cash or stock dividends to our stockholders, and convert into shares of our common stock when the underlying RSUs to which they relate are converted (excluding fractional RSUs, which are cancelled). All RSUs granted prior to the | |
(4) | Mr. Foster retired as a member of the board of directors, effective July 26, 2018. |
(5) | Mr. Pugh is not standing for re-election at the Annual Meeting. |
HEXCEL CORPORATION | 2019 Proxy Statement |
Set forth below is certain information concerning each of our executive officers in 2016.officers. For additional information concerning Mr. Stanage, see “PROPOSAL 1—ELECTION OF DIRECTORS—Information Regarding the Directors” on page 5.
In 2016, we evaluated our leadership team in light of the significant increase in the size and scope of our operations, and determined that the duties and responsibilities of certain positions had increased over time. To reflect this, we appointed Messrs. Canario, Merlot and Swords as executive officers.2.
Executive | ||||||||||||||||
Officer | ||||||||||||||||
Name | Age on March 17, 2017 | Executive Officer Since | Position(s) With Hexcel | Age | Since | Position(s) With Hexcel | ||||||||||
Nick L. Stanage | 58 | 2009 | Chairman of the Board; Chief Executive Officer; President; Director | 60 | 2009 | Chairman of the Board; Chief Executive Officer; President; Director | ||||||||||
Wayne C. Pensky | 61 | 2007 | Executive Vice President; Chief Financial Officer | |||||||||||||
Gail E. Lehman* | 57 | 2017 | Executive Vice President; General Counsel; Secretary | |||||||||||||
Ira J. Krakower** | 76 | 1996 | Special Counsel to the Chief Executive Officer | |||||||||||||
Patrick J. Winterlich | 49 | 2017 | Executive Vice President; Chief Financial Officer | |||||||||||||
Gail E. Lehman | 59 | 2017 | Executive Vice President; General Counsel; Secretary | |||||||||||||
Robert G. Hennemuth | 61 | 2006 | Executive Vice President, Human Resources | 63 | 2006 | Executive Vice President; Human Resources and Communications | ||||||||||
Thierry Merlot | 57 | 2016 | President – Aerospace Europe, Middle East, Asia and Asia Pacific | 58 | 2016 | President – Aerospace, Europe, Middle East, Africa and Asia Pacific | ||||||||||
Michael Canario | 49 | 2016 | President – Aerospace Americas | |||||||||||||
Colleen Pritchett | 45 | 2018 | President – Aerospace, Americas | |||||||||||||
Brett Schneider | 46 | 2018 | President – Global Fibers | |||||||||||||
Timothy Swords | 54 | 2016 | President – Industrial | 56 | 2016 | President – Industrial |
WAYNE C. PENSKY has served asPATRICK J. WINTERLICHwas appointed our Executive Vice President and Chief Financial Officer since May 2016. From April 2007 to May 2016,in September 2017. Mr. Pensky wasWinterlich joined Hexcel in 1998 and has served in roles of increasing responsibility in Operations, Finance and Information Technology, serving most recently as Senior Vice PresidentPresident—Tax, Systems and Chief Financial Officer. PriorEnterprise Reporting from March 2016 to serving in this role, Mr. Pensky served as Vice President, Finance and Controller of our Composites global business unit since 1998. From 1993 to 1998 Mr. Pensky was our Corporate Controller and Chief Accounting Officer.August 2017. Prior to joining Hexcel, Mr. Winterlich served in 1993, Mr. Pensky wasseveral financial capacities at Courtaulds plc, a partner at Arthur Andersen & Co., where he had been employed since 1979.U.K. international chemicals group. He has a degree in accounting and financial analysis from Warwick University and is a member of the Chartered Institute of Management Accountants.
GAIL E. LEHMANwas appointed our Executive Vice President, General Counsel and Secretary in January 2017. Prior to joining Hexcel, she worked at Noranda Aluminum Holding Corporation where she served aswas Chief Administrative Officer, General Counsel & Corporate Secretary. PriorSecretary at Noranda Aluminum Holding Corporation from March 2012 to December 2016; its Vice President of Human Resources, General Counsel and Corporate Secretary from February 2011 to March 2012; and its Vice President, General Counsel and Secretary from January 2010 to February 2011. On February 8, 2016, Noranda filed for bankruptcy protection under the U.S. Bankruptcy Code. Ms. Lehman was Vice President, General Counsel &and Corporate Secretary at both Hawker Beechcraft Corporation (July 2007-August 2009) and Covalence Specialty Materials Corporation. Earlier in her career,Corporation (April 2006-May 2007). From November 2001 through April 2006, she was Assistant General Counsel, Treasury and Finance, and Assistant Secretary of Honeywell International Inc. From 1993 to November 2001, Ms. Lehman held numerous roles as Assistant General Counsel and General Counsel at Honeywell International, supporting Treasury and Finance, Honeywell Fluorine Products, Engineered Plastics and Specialty Films, and environmental litigation and regulatory compliance.various position of increasing responsibility in the Law Department of Honeywell.
IRA J. KRAKOWER served as our Executive Vice President, General Counsel and Secretary from May 2016 until January 2017, when he became Special Counsel to the Chief Executive Officer. From September 1996 to May 2016, Mr. Krakower was Senior Vice President, General Counsel and Secretary. Prior to joining Hexcel, Mr. Krakower served as Vice President and General Counsel to Uniroyal Chemical Corporation from 1986 to August 1996 and served on the board and as Secretary of Uniroyal Chemical Company, Inc. from 1989 to 1996.
ROBERT G. HENNEMUTH has servedwas appointed as our Executive Vice President, Human Resources and Communications sincein May 2016. Mr. Hennemuth joined Hexcel in March 2006 as Senior Vice President, Human Resources. Prior to joining Hexcel, Mr. Hennemuth served as Vice President—Human Resources of Jacuzzi Brands, Inc. from July 2003 to September 2005. Previously, he was employed by Honeywell
International Inc., (formerly known as and, prior to the acquisition of Honeywell by AlliedSignal Inc.), in 1999, by AlliedSignal where he served as Vice President of Human Resources & Communications for various businesses from December 1996 to June 2003, including the Honeywell Consumer Products Group.
THIERRY MERLOTbecame our President, Aerospace, – EMEA/APEurope, Middle East, Africa and Asia Pacific in May 2016. From 2010 to May 2016, he was Vice President and General Manager—Aerospace, EMEA/AP.Europe, Middle East, Africa and Asia Pacific. Mr. Merlot joined Ciba-Geigy in 1988, and became an employee of Hexcel upon the merger between Hexcel and Ciba-GeigyCiba’s Composites business in 1996. Over the years, he has held several sales and marketing positions in Europe and Asia Pacific for the company. Mr. Merlot began his career in 1983 with Dassault Aviation as an R&D process engineer and Quality Manager for composite materials.
MICHAEL CANARIO
HEXCEL CORPORATION | 2019 Proxy Statement | 13 |
EXECUTIVE OFFICERS
COLLEEN PRITCHETTbecame our President, Aerospace, – Americas in November 2018. Prior to joining Hexcel, Ms. Pritchett served in a number of capacities for E.I. du Pont de Nemours and Company from June 1996 until November 2018, including most recently as Global Business Director and President of the Electronics & Imaging Advanced Printing business from January 2016 until November 2018; Global Business Director and President of the Electronics & Communications Microcircuit Materials business in Taiwan from May 2016.2015 until December 2015; and Asia Pacific Director of the Performance Polymers business in Shanghai, China from July 2013 until May 2015. Prior to that, Ms. Pritchett held various positions of increasing responsibility at du Pont, such as Global Business Director of the Performance Polymers Kalrez®and Vespel®business; Strategic Planning Manager for the DuPont Company; Strategic Planning Manager for the Performance Coatings business; Americas Business Manager; North America Sales and Distribution Manager; and National Accounts Team Sales Manager, as well as roles in Engineering, Finance and Sales.
BRETT SCHNEIDERbecame our President, Global Fibers in January 2018. From 2010May 2016 through 2017, Mr. Schneider was our Senior Vice President, Business Development, and from October 2012 to May 2016, he wasMr. Schneider served as our Vice President, and General Manager, Aerospace – Americas.Business Development. Mr. CanarioSchneider joined Hexcel with the Ciba-Geigy merger in 1996 when he was Manager—International Business Development. He2001 and has held several other positions withinwith Hexcel, including Vice President—Americas SalesShared Services Manager and Marketing, Director—Financial PlanningGlobal Project Manager at our Duxford, UK plant, Plant Manager for our Salt Lake City fiber operations, Site Manager at our Salt Lake City plant and Analysis, Manager—eCommerce and Supply Chain, Finance Manager—Asian Joint Ventures, and Manager—Global Operations Coordination.Director of Advanced Manufacturing. Prior to Ciba-Geigy,joining Hexcel, Mr. Canario worked at BP ChemicalsSchneider served as BusinessOperations & Process Development Manager Project Engineer,at Meridian Automotive Systems, Plant Manager at Cambridge Industries and Operations Manager. Mr. Canario also workedAutomation Development Manager at Leading Systems.US Marine.
TIMOTHY SWORDSbecame our President, Industrial in May 2016, after serving from October 2012 to May 2016 as Vice President and General Manager—Industrial. He joined Hexcel in 2011 as Vice President, Business Development. Previously, he was General Manager of Commercial Engines Marketing, and Director of Strategic & Regional Marketing at GE Aviation. In addition, Tim spent several years with Honeywell Aerospace, wherePrior to his tenure at GE Aviation, he served in several positions for Honeywell Aviation, including Vice President of Technical Sales for Air Transport & Regional and Vice President of Sales, Marketing & Business Development for Engine Systems and Accessories. EarlyEarlier in his career, TimMr. Swords was Communications Systems Engineera communications systems engineer with AG Communications Systems and with the Johns Hopkins University Applied Physics Lab.
14 | HEXCEL CORPORATION | 2019 Proxy Statement |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Stock Beneficially Owned by Principal Stockholders
The following table sets forth certain information as of February 28, 2017December 31, 2018 with respect to the ownership by any person (including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”)) known to us to be the beneficial owner of more than five percent of the issued and outstanding shares of Hexcel common stock:stock (the number of shares held by each listed stockholder may have changed subsequent to December 31, 2018):
Name and Address | Number of Shares of Common Stock(1) | Percent of Common Stock(1) | ||||||
The Vanguard Group(2) | 6,748,119 | 7.4% | ||||||
100 Vanguard Boulevard | ||||||||
Malvern, PA 19355 | ||||||||
Capital International Investors(3) | 5,188,450 | 5.7% | ||||||
11100 Santa Monica Boulevard | ||||||||
Los Angeles, CA 90025 | ||||||||
BlackRock, Inc.(4) | 4,931,191 | 5.4% | ||||||
55 East 52nd Street | ||||||||
New York, NY 10055 | ||||||||
AllianceBernstein L.P.(5) | 4,827,866 | 5.3% | ||||||
1345 Avenue of the Americas | ||||||||
New York, NY 10105 |
Number of | ||
Shares of | Percent of | |
Name and Address | Common Stock(1) | Common Stock(1) |
The Vanguard Group, Inc.(2) | 7,522,839 | 8.9% |
100 Vanguard Boulevard | ||
Malvern, PA 19355 | ||
BlackRock, Inc.(3) | 5,442,419 | 6.4% |
55 East 52nd Street | ||
New York, NY 10055 | ||
Epoch Investment Partners, Inc.(4) | 4,523,680 | 5.3% |
399 Park Avenue | ||
New York, NY 10022 |
(1) |
(2) | Of the |
(3) | BlackRock, Inc. is |
(4) | Epoch Investment Partners, Inc. |
HEXCEL CORPORATION | 2019 Proxy Statement | 15 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Stock Beneficially Owned by Directors and Officers
The following table contains information regarding the beneficial ownership of shares of Hexcel common stock as of February 28, 20172019 by our current directors and the executive officers listed in the Summary Compensation Table and by all directors and current executive officers as a group. The information appearing under the heading “Number of Shares of Common Stock” was supplied to us by the persons listedExcept as otherwise indicated in the table.footnotes to the table, we have been informed that each person listed had sole voting power and sole investment power over the shares of common stock shown opposite his or her name.
Number of Shares | Percent of | |||||||||||||||
Name | Number of Shares of Common Stock(1) | Percent of Common Stock(2)(3) | of Common Stock(1)(2) | Common Stock(3)(4) | ||||||||||||
Nick L. Stanage | 502,938 | * | 574,211 | * | ||||||||||||
Joel S. Beckman | 33,883 | * | 37,821 | * | ||||||||||||
Lynn Brubaker | 14,011 | * | 10,785 | * | ||||||||||||
Jeffrey C. Campbell | 43,189 | * | 47,026 | * | ||||||||||||
Cynthia M. Egnotovich | 7,156 | * | 11,012 | * | ||||||||||||
W. Kim Foster | 30,185 | * | ||||||||||||||
Thomas A. Gendron | 42,798 | * | 46,546 | * | ||||||||||||
Jeffrey A. Graves | 30,122 | * | 38,023 | * | ||||||||||||
Guy C. Hachey | 7,560 | * | 11,220 | * | ||||||||||||
David Hill(6) | 19,834 | * | ||||||||||||||
David L. Pugh | 65,634 | * | 69,490 | * | ||||||||||||
Wayne C. Pensky | 361,878 | * | ||||||||||||||
Ira J. Krakower | 491,020 | * | ||||||||||||||
Catherine A. Suever | 1,590 | * | ||||||||||||||
Patrick J. Winterlich | 24,463 | * | ||||||||||||||
Gail E. Lehman | 12,062 | * | ||||||||||||||
Robert G. Hennemuth | 120,960 | * | 133,033 | * | ||||||||||||
Thierry Merlot | 130,738 | * | 92,223 | * | ||||||||||||
All executive officers and directors as a group (18 persons) | 1,983,576 | 2.1 | % | |||||||||||||
All executive officers and directors as a group (17 persons) | 1,199,973 | 1.4 | % |
(1) | |
(2) | None of our directors or |
(3) | Based on |
(4) | An asterisk represents beneficial ownership of less than 1%. |
(5) | Includes 1,590 shares underlying stock-based awards granted to Mr. Beckman that are held for the benefit of Greenbriar Equity Group LLC. Mr. Beckman disclaims beneficial ownership of these shares. |
(6) | Includes |
HEXCEL CORPORATION | 2019 Proxy Statement |
In this Compensation Discussion and analyzesAnalysis, we address the material elements of 2016 compensation for ourpaid or awarded to the following executive officers identifiedof the company, who are listed in the Summary Compensation Table on page 43. Wethat follows this discussion, and whom we refer to as our “named executive officers” or “NEOs.”
n | Nick L. Stanage, our Chairman, Chief Executive Officer and President |
n | Patrick J. Winterlich, our Executive Vice President and Chief Financial Officer |
n | Gail E. Lehman, our Executive Vice President, General Counsel and Secretary |
n | Robert G. Hennemuth, our Executive Vice President, Human Resources and Communications |
n | Thierry Merlot, our President – Aerospace, Europe, Middle East, Africa and Asia Pacific |
Our Operating Performance in 2018
Our operating performance in 2018 was strong, as we delivered record sales, earnings and free cash flow, reflecting continued focus on innovation and execution, and stronger positions in the markets we serve:
n | Sales were $2.189 billion in 2018, an increase of 11% compared to 2017. |
n | Diluted net income per common share was $3.11 in 2018, compared to $3.09 in 2017. |
n | Adjusted diluted earnings per share was $3.05 for 2018, as compared to $2.68 in 2017. Adjusted diluted earnings per share is a non-GAAP financial measure. See Annex A to this proxy statement for a reconciliation of adjusted diluted earnings per share to GAAP diluted earnings per share. |
n | Net cash provided by operating activities was $421.4 million in 2018, compared to $428.7 million in 2017. Free cash flow, a non-GAAP financial measure, was $237.3 million in 2018, compared to $150.6 million in 2017. Free cash flow equals our net cash provided by operating activities minus capital expenditures, which were $184.1 million in 2018 and $278.1 million in 2017. |
We achieved these individualsresults while continuing to make significant investments in capacity expansions and manufacturing process innovations to accommodate our customers’ anticipated growth, and in research and technology, both internally and through acquisitions and collaborations.
Our Compensation Philosophy and Principles
Our compensation philosophy is based upon pay for performance to create sustainable value for our stockholders. To further our compensation philosophy, our compensation committee has articulated several compensation principles relating to, among other things, structuring performance-based compensation, discouraging excessive risk taking and preventing and remedying executive misconduct. See “Executive Compensation Overview – Our Compensation Philosophy and Principles,” below.
Structure of Our Compensation
Our pay for performance philosophy is demonstrated by the way we have structured the elements of our compensation, which provide a significant level of variability depending on our performance. These elements consist of salary, annual cash incentive awards under our Management Incentive Compensation Plan (“MICP”) and long-term equity awards in the form of non-qualified stock options (“NQOs”), performance-based share awards (“PSAs”) and, for all executives other than Mr. Stanage, restricted stock units (“RSUs”). As demonstrated by the
HEXCEL CORPORATION | 2019 Proxy Statement | 17 |
COMPENSATION DISCUSSION AND ANALYSIS
chart below, a significant amount of compensation for our named executive officers constitutes variable compensation tied to our financial performance. This is particularly the case for Mr. Stanage, as he does not receive RSUs, but rather a greater percentage of PSAs.
In addition to health and welfare and retirement plans made available to our U.S.-based employees, we provide our U.S.-based named executive officers with some or all of the following benefits: a non-qualified deferred compensation plan, supplemental retirement benefits and severance arrangements with respect to specified termination of employment events. See “Ongoing and Post-Employment Arrangements,” below for additional information. We do not provide personal benefits to our U.S.-based named executive officers (including Mr. Stanage) hired or appointed during the past several years, and only limited personal benefits to other named executive officers, as described below under “2018 Compensation – Personal Benefits.”
NEO Target Pay Mix
2018 Compensation
Salaries
n | For our named executive officers who continued to serve in the same capacities as in 2017, except Mr. Winterlich, salaries were increased in the range of 3% to 6%. |
n | Mr. Winterlich did not receive an increase in 2018 as he was promoted to Executive Vice President and Chief Financial Officer in September 2017, at which point his base salary for 2018 was determined. |
n | Mr. Merlot received a 6% increase in 2018 in light of his strong performance, his strategic influence within the company, and his relative position compared to the survey data considered by the compensation committee. |
MICP– Achievement with regard to the three equally-weighted financial measures under our MICP:
n | Adjusted EBIT – $397 million target; $383.9 million actual performance; 83.8% award |
n | Adjusted Diluted Earnings Per Share – $2.99 target; $3.07 actual performance; 126.9% award |
n | Cash from Operating Activities – $531 million target; $532.9 million actual performance; 101.8% award |
18 | HEXCEL CORPORATION | 2019 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS
Averaging the results with respect to these financial measures, the total award payable to each named executive officer was equal to 104.18% of the executive’s target award opportunity (the target award opportunity for the named executive officers or “NEOs.” The compensation committeeranged from 55% to 100% of the boardnamed executive officers’ salaries).
For further information, including how we calculated the financial measures, see “2018 Compensation – Management Incentive Compensation Plan,” below.
Equity Awards– In 2018, we provided three types of directors is responsibleequity awards for determiningeach named executive officer other than Mr. Stanage, having an aggregate value equal to the compensation and benefitsnamed executive officer’s target award opportunity (which ranged from 95% to 145% of the NEOs. named executive officers’ salaries), as follows:
n | NQOs – 37.5% of the target award opportunity |
n | RSUs – 25% of the target award opportunity |
n | PSAs – 37.5% of the target award opportunity |
To further increase the pay for performance focus of Mr. Stanage’s compensation, we provided equity awards having the following percentages of his target award opportunity (which was 330% of his salary):
n | NQOs – 37.5% |
n | PSAs – 62.5% |
The committee’s determinationnumber of shares that ultimately will be provided under the PSAs will be based upon our performance with respect to the following two financial measures:
n | ROIC (return on invested capital) (67% weighting) from January 1, 2018 through December 31, 2020 |
n | Relative EPS Growth (33% weighting) from October 1, 2017 through September 30, 2020 |
Relative EPS Growth is computed based on our performance relative to the companies in the Standard & Poor’s (“S&P”) MidCap 400 Index.
See “2018 Compensation – Equity Awards” for additional information.
Performance Share Payout for 2016-2018 Period
Messrs. Stanage, Winterlich, Hennemuth, and Merlot received equity awards in 2016, including PSAs providing for awards of our common stock based on our performance during the 2016-2018 period with regard to the following financial measures:
n | ROIC (75% weighting) |
n | EPS Growth (25% weighting) |
Achievement with regard to these financial measures under our MICP for the 2016-2018 performance period was as follows:
n | ROIC – 14.0% target; 13.85% actual performance; 94.1% award |
n | EPS Growth – $8.38 target; $8.64 actual performance; 151.1% award |
Based on our performance with regard to these financial measures during the 2016-2018 period, we provided a number of shares of our common stock equal to 108.3% of each named executive officer’s target PSA award opportunity.
See “2018 Compensation – Vesting of PSAs Granted in 2016” for further information.
Stockholder Advisory Vote on Executive Compensation
At our 2018 Annual Meeting of Stockholders, our stockholders approved, on an advisory basis, the compensation of our CEOnamed executive officers. The stockholder vote in favor of named executive officer compensation totaled approximately 92% of the votes cast, including abstentions. After consideration of the results of the advisory vote, we determined that no revisions to our executive compensation program were necessary in response to the vote.
HEXCEL CORPORATION | 2019 Proxy Statement | 19 |
COMPENSATION DISCUSSION AND ANALYSIS
Our Compensation Best Practices
We follow a number of compensation practices consistent with our stockholder interests and best practices:
What We Do | What We Don’t Do | |
ü Structure pay so that a considerable portion is variable and performance-based ü Maintain stock ownership guidelines for all executive officers and directors ü Maintain a clawback policy that applies to executive officer incentive-based compensation ü Maintain an independent compensation committee and independent compensation consultant ü Limit maximum incentive payouts ü Require compensation committee oversight of annual compensation review and risk assessment | û No excise tax gross-up under severance agreements (subsequent to 2013) or under our Executive Severance Policy û No pledging, hedging or short selling by our directors or by any Hexcel employee, including executive officers û No repricing of any stock options, including underwater stock options, without stockholder approval |
Executive Compensation Overview
Our Compensation Philosophy and Principles
Our philosophy is to deliver pay for performance. We seek to provide a level of performance that creates sustainable value for our stockholders by generating short-term results while also making investments designed to increase profitability over the long-term.
Our compensation principles, as articulated by the compensation committee, are to:
n | Attract, retain and motivate a high caliber of executive talent |
n | Ensure that a significant portion of total target compensation is variable compensation based on company performance |
n | Encourage long-term focus while recognizing the importance of short-term performance |
n | Determine compensation based on forward looking considerations and not solely on the basis of past compensation or results |
n | Align executive and stockholder interests by requiring executive officers to meet ownership guidelines and prohibiting them from pledging our stock or engaging in short sales or any hedging or monetization transactions involving our stock |
n | Establish goals for performance-based compensation that are challenging yet attainable |
n | Discourage excessive risk taking by structuring pay to consist of both fixed and variable elements, using a mix of short- and long-term company performance metrics and setting maximum total payouts |
n | Prevent and remedy executive misconduct, and impose appropriate discipline on individuals who engage in misconduct |
We believe that the structure of our compensation program, which is explained in detail below, is consistent with these principles.
Role of Compensation Committee, Compensation Consultant, Human Resources Department and Chief Executive Officer
Role of the Compensation Committee– The compensation committee is responsible for oversight of our compensation and benefit plans and programs. The compensation committee approves the compensation of our executive officers other than Mr. Stanage, and determines Mr. Stanage’s compensation, including goals and target award opportunities, subject to ratification by our independent directors.
In setting NEO compensation for 2016, the committee focused on the alignment of pay and performance with short-term and long-term goals designed to incentivize improvements in key financial metrics. Our 2016 sales, operating income, net income and earnings per share again increased over prior years, continuing our record of strong performance.
We had double-digit adjusted EPS growth of 11.2%1 as we generated $401 million of cash from operating activities. This funded our investments and capital expenditures for capacity expansions in order to support our organic growth. Our total sales increased 7.7%, resulting in an 8.3% increase in operating income, equal to 18.0% of sales. These strong results enabled us to continue to focus on innovation and operational excellence as we drive manufacturing throughput, capacity expansion and technology advances to support our customers’ growth and next generation products.
Our long-termafter-tax return on invested capital, or ROIC, remained robust at 14.8% for 2014-2016, demonstrating our continued success at executing our capacity growth plans in a timely and efficient manner and deriving profitable results from our investments. See “Pay for Performance—MICP Annual Cash Incentive” on page 25 and “—Performance Based Share Awards” on page 26 for a description of these metrics as they relate to our incentive awards.
The stockholder advisory votes on our executive compensation held at our 2015 and 2016 annual meetings resulted in approval votes of over 95% in each year. The committee considered these results as general approval of the Company’s approach to executive compensation, and as one factor among many when it made its decision to maintain the principles underlying our existing compensation strategy for 2016. It also considered these results as it set compensation for 2017.
Pay for Performance
We recognize that our stockholders invest in the company with the expectation that we will deliver a level of performance that creates value. We seek to deliver sustainable value, meaning that our actions to generate short-term results should be balanced with the need for investments in technologies, capabilities, products, markets and employees to provide increased profitability over the long-term.
When evaluating the appropriateness of our executive compensation for 2016 relative to our performance, the following considerations are relevant:
Did our selection of short-term and long-term financial objectives create incentives to deliver desired levels of performance without encouraging excessive risk taking?
Are we investing our capital and resources prudently to generate operating returns that exceed our cost of capital?
Did our performance generate meaningful results under the metrics we use to measure our short-term and long-term performance, as well as Total Stockholder Return (“TSR”)?
As explained below, we believe the answer to these questions is “yes.”
Total Stockholder Return
TSR is one way stockholders may evaluate company performance. The long-term compensation of our CEO is designed to correlate with our TSR because over 50% of his target compensation consists of equity awards, and our stock ownership guidelines require a significant holding of equity. However, TSR can be affected by external forces beyond the company’s control which may not reflect the organic operating performance and profitability of the company over the incentive measurement period. Therefore, we also incorporate the metrics into our compensation program that are described below in the discussion of the individual components of our compensation program.
The year over year improvement in our financial results for each of the last five years has not been consistently reflected in the company’s annual TSR for such years, which has fluctuated from a high of 65.8% in 2013, to a low of-7.2% in 2014, rebounding to 12.9% for 2015 and 11.9% for 2016. In contrast, our ROIC for the three-year period ending December 31, 2016 was 14.8%. This reinforces our belief that it is more appropriate to tie our CEO’s compensation to the achievement of short-term and long-term company performance goals that are selected to drive sustained growth in TSR over time, rather than tying it directly to TSR. The chart below shows our cumulative TSR for the five-year period ending December 31, 2016 compared with our CEO’s total direct compensation (“TDC”) for 2012 through 2016, which demonstrates a positive correlation between TSR and TDC and is a clear indicator of how our compensation program effectively aligns our executives’ interests with those of our stockholders. TDC includes the following components: salary, actual cash incentive award, grant date value of annual equity awards and all other compensation, as derived from the Summary Compensation Table.
The five-year cumulative TSR shows the increase or decrease in value of a $100 investment in Hexcel common stock made on January 1, 2012, as of the end of each fiscal year in the five-year period, and includes the reinvestment of dividends paid in 2015 and 2016.
Unlike TDC, the SEC’s calculation of total compensation, as shown in the Summary Compensation Table set forth on page 43, includes changes in the value of pensions and nonqualified deferred compensation earnings. These changes are not the result of any enhanced benefits under the relevant pension plans or arrangements, but rather reflect valuation methodologies that are driven by accounting and actuarial assumptions, such as the assumed retirement age and the discount rate used to determine the present value of the benefit, as well as by changes in salary and cash incentives
| HEXCEL CORPORATION | 2019 Proxy Statement |
The chart shows the TDC for David E. Berges, our former CEO, from 2012 through 2013, and the TDC for Mr. Stanage for 2014 through 2016. See “2016 Executive Compensation Decisions” for a description of the changes in Mr. Stanage’s compensation between August 2013, when he became CEO, and 2016.
Compensation Components
Target compensation in 2016 for our NEOs included salary, annual cash incentive awards granted under our Management Incentive Compensation Plan (“MICP”), and equity awards in the form of restricted stock units (“RSUs”),non-qualified stock options (“NQOs”) and performance-based share awards (“PSAs”). A significant portion of NEO compensation, ranging from 33% to 59% of total target compensation in 2016, was in the form of long-term equity incentives. We believe that the long tenure of our NEOs and their demonstrated commitment to the long-term performance of the company reinforces the effectiveness of our compensation strategy.COMPENSATION DISCUSSION AND ANALYSIS
Actual NEO compensation in 2016 included the following elements:
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MICP Annual Cash Incentive
We designed our performance metrics for 2016 MICP awards to incentivize our leaders to achieve improvements in three areas: Adjusted EBIT, Cash from Operating Activities and Adjusted Diluted Earnings per Share. Each metric was equally weighted. In January 2017,addition, the compensation committee certified the degree of attainment of the 2016 financial metrics, which resulted in a payout percentage of 146.5% of the aggregated target awards for all participants in the MICP. The committee continued to believe that these metrics appropriately align pay with performance and motivate management to strive for continuously improving performance. Targets for 2016 were set in excess of 2015 actual results for each of the MICP metrics, which challenged the management team to continue to improve profitability and cash flow despite anticipated increases in depreciation, cash taxes and interest expense, as well as increasing customer demands for productivity and cost competitiveness. The management team achieved above-target performance on the Cash from Operating Activities and Adjusted Diluted EPS metrics, and was slightly under target on the Adjusted EBIT metric, which nevertheless represented an 8% increase over the prior year. See “2016 Executive Compensation Decisions – MICP Awards” on page 32.
The following GAAP andnon-GAAP financial measures were used to measure performance for our 2016 annual cash incentive awards granted under the MICP:
“Cash from Operating Activities” means cash provided by operating activities of continuing operations from the consolidated statement of cash flows, measured from September 30, 2015 to December 31, 2016.
“Adjusted EBIT” means operating income plus the sum of business consolidation and restructuring expense and other expenses (income) and eligible severance payments.
“Adjusted Diluted Earnings per Share” means the quotient of Adjusted EBIT minus interest expense minus income taxes plus equity in earnings from affiliated companies, as adjusted, divided by the weighted average number of diluted shares of common stock outstanding.
Performance-Based Share Awards
The PSAs awarded in 2014 used Return on Invested Capital, or “ROIC,” for the purpose of assessing our performance for the three-year performance period ending December 31, 2016. ROIC was selected for the PSAs because it measures both earnings growth and the efficient management of the assets of the company. ROIC for these PSAs was defined as the average return for 2014, 2015 and 2016 divided by the average invested capital as of December 31, 2013, 2014, 2015 and 2016, where:
“Return” generally means operating income, adjusted for other operating expense (income), taxes and including equity in earnings from affiliated companies, and
“Invested capital” generally means stockholders’ equity plus net debt.
In January 2017, the compensation committee certified that for the 2014-2016 performance cycle we achieved ROIC of 14.8%, which resulted in an award of 123.2% of the target established for the performance cycle. This result demonstrates that our performance continued to be strong in the long-term as well as in the short-term, as our investments generated a return that greatly exceeded our cost of capital, while we continued to make substantial investments in capacity to support customer demand.
We pay incentive compensation only after the committee has certified our performance results and corresponding MICP and PSA awards for the applicable performance periods. In certifying the results, the committee performs a review of our financial performance against goals following verification of the calculations by our independent auditors.
The Process for Setting Compensation
Compensation Philosophy
The company’s compensation philosophy, as articulated by the compensation committee, is:
To attract, retain and motivate a high caliber of executive talent
To ensure that a significant portion of total target compensation is variable compensation based on company performance
To encourage long-term focus while recognizing the importance of short-term performance
To determine compensation based on forward-looking considerations and not solely on the basis of past compensation or results
To align executive and stockholder interests by requiring NEOs to meet share ownership guidelines and prohibiting them from hedging our stock
To establish goals for performance-based compensation that are challenging yet attainable
To discourage excessive risk taking by structuring our pay to consist of a blend of both fixed and variable elements, using an appropriate mix of short and long-term company performance metrics, and setting maximum total payouts
To prevent and remedy executive misconduct, and impose appropriate discipline on individuals who engage in misconduct or malfeasance. See page 40 for a description of our policy regarding executive misconduct, which authorizes recovery of incentive compensation from an executive.
The process used by the company to implement this philosophy is described below.
The Compensation Committee
The compensation committee operates under a written charter approved by the board and reviewed by the committee annually. The charter provides that the committee is accountable for defining the goals of our compensation policy, reviewing and approving our compensation programs, and overseeing our benefit programs. The committee reviews and approves the compensation of the NEOs on an annual basis, including salary, cash incentives, equity grants and benefits. The committee’s approval of the compensation of our CEO is subject to ratification by our independent directors. The committee also reviews annually the benefit plans applicable to all of our employees, including the NEOs. In addition, the committee periodically reviews our retirement benefits for NEOs.
Compensation Consultant
The committee retains an independent compensation consultant, Semler Brossy Consulting Group, LLC (“Semler Brossy” or “the consultant”), to assist it in establishing and reviewing executive compensation. The consultant reports directly to the compensation committee and the committee has the sole authority to approve the consultant’s fees and the other terms of engagement. In accordance with NYSE listing standards, the committee assessed the independence of Semler Brossy. The committee determined that Semler Brossy is independent based on those standards and that its work for the committee has not raised any conflicts of interest. Specifically, the consultant has not performed, and does not currently perform, consulting work for management. If management requests any work from the consultant, the consultant must first obtain the approval of the chair of the committee.
The committee has engaged the consultant to provide advice to the committee with the objective of creating long-term value for stockholders through our compensation programs. In providing this advice, the committee asks the consultant to inform the committee periodically of compensation-related developments that may influence the committee’s decision-making processes, including changes to regulations. The consultant is expected to communicate regularly with management to understand the company’s business environment, talent needs, and compensation considerations (from the perspective of both the committee and management). In addition, prior to committee meetings, the consultant confers with the committee chair regarding the matters to be discussed at the meeting, and confers with management on management presentations to the committee. In the event the consultant may differ with management after conferring, the consultant will review any differences independently with the committee, or together with management and the committee, as the committee determines to be appropriate.
With the recommendation and consent of the committee, our CEO confers with the consultant when developing compensation recommendations for the other NEOs. On behalf of the committee, senior management periodically confers with the consultant on our executive compensation programs and may request the consultant’s views regarding the modification of existing programs, the adoption of new programs, or preparing offers of employment to senior executives.
Compensation Risk Oversight
In response to a committee request, in 2016 management completed a comprehensive review and analysis of our control environment to determine whether current compensation policies, practices and programs to determine whether they could result in financial, operational, regulatory, compliancelegal or reputational risk to our company. As a result of its most recent review, the company. The results of the review were presented to the committee, which considered risk-mitigation features such as maximum award levels, the use of multiple financial metrics, multi-year vesting and stock retention requirements, and our clawback policy. Thecompensation committee concluded that we have incentive compensation programs that properly align pay and performance without encouraging excessive financial risk-taking. We believe that risks arising from our compensation policies, practices and practicesprograms are not reasonably likely to have a material adverse effect on our company. Management will continue to conduct annual risk assessments and adviseIn reaching its conclusion, the compensation committee of any findings and recommendations to effectively manage compensation risk.
Competitive Assessment
Each year the committee specifically reviews performance and authorizes the salaries, incentives, and equity grants for the NEOs. In making these determinations, the committee considers prevailing compensation practices of the comparator group as well as general industry survey data, experience, tenure in position andconsidered, among other factors, it deems relevant.
The Comparator Group
The comparator group is comprised of companies which have attributes that when viewed as a whole, represent a reasonable comparison to us inwe use a number of relevant respects.approaches to mitigate excessive risk taking in designing our compensation programs, including maximum award levels, the use of multiple financial measures with respect to the MICP and PSAs, multi-year vesting of equity awards, stock ownership guidelines, and our clawback policy.
See “PROPOSAL 1—ELECTION OF DIRECTORS – Meetings and Standing Committees of the Board of Directors – Compensation Committee” for additional information regarding the duties and responsibilities of the compensation committee.
Role of Compensation Consultant– The compensation committee directly engaged Semler Brossy Consulting Group LLC (“Semler Brossy”) to provide advice with respect to its compensation decisions. The compensation committee assessed the independence of Semler Brossy in accordance with NYSE listing standards and concluded that no conflicts of interest were raised in connection with Semler Brossy’s service as an independent consultant to the compensation committee. In particular,reaching its conclusion, the compensation committee noted that Semler Brossy does not provide any other services to us.
Role of our Human Resources Department– Our Human Resources Department provides statistical and other data to the compensation committee to assist it in reviewing compensation we provide to our executives.
Role of our Chief Executive Officer– Mr. Stanage provides recommendations to the compensation committee as to the components of our executive officers’ compensation based on his evaluation of their performance. However, he does not make recommendations regarding his own compensation and is not present during compensation committee discussions regarding determination of his compensation. While the compensation committee considers Mr. Stanage’s compensation recommendations for our other executive officers, the ultimate determinations regarding executive compensation are made by the compensation committee, subject, in the case of Mr. Stanage, to ratification by our independent directors.
Competitive Assessment of Our Compensation
In making its compensation determinations for 2018, the compensation committee took into account several forms of comparative data to gain insight into compensation paid by other companies to executives serving in similar capacities to our named executive officers.
Peer Group
The principal source of comparative data with respect to our named executive officers, to the extent available, was proxy statement data with regard to 14 peer group companies, which was supplemented with survey data as described below. Our primary objective in constructing our peer group was to identify a group of similarly sized peers that represent a blend of companies producing products similar to ours or companies that are suppliers to the aerospace industry, with a preference for companies that fit within both categories. To meet this objective as best as reasonably possible, we used the following criteria are considered in selecting our comparator group:
Industry, such as aerospace, defense and specialty chemicals
Business complexity and international scope and operations
Market for investor capital
Company characteristics such as revenues, market capitalization and geographic location
Competition for executive and managerial talent
The comparator group is selected by the committee based on recommendations by our consultant with input from management. The committee reviews companies included in the comparator group annually, and periodically conducts a detailed assessment of their continued relevance to the company. The committee conducted such an assessment in 2015, after which the committee determined that changes were appropriate to meet the foregoing criteria. We removed Cytec Industries Inc., which was in the process of being acquired, FMC Corporation and Kaman Corporation, which the committee determined no longer provided relevant business comparisons under more than one of the consideration criteria. The committee added Orbital ATK, Inc. and Rockwell Collins, Inc., both aerospace companies, and Woodward Inc., a company in the aerospace and industrial sectors, as they were deemed to be more directly comparable than the eliminated entities.
The comparator group companies considered by the committee in determining NEO compensation for 2016 were:criteria:
n | Industry fit – We consider publicly traded United States companies that are: |
n | in the same Global Industry Classification Standards (“GICS”) sub-industry as Hexcel (Aerospace and Defense); or |
| n | in the GICS sub-industries that produce products that are similar to ours. |
n | Size – We consider companies that: |
n | have revenues in the range of 1/3 to three times our revenues; and |
n | have a market capitalization in the range of 1/3 to three times our market capitalization. |
n | Other qualitative and quantitative factors that enable us to identify companies with similar talent, business and operational characteristics. |
21 |
COMPENSATION DISCUSSION AND ANALYSIS
Not every company in our peer group meets all of the peer group screening criteria. For example, two of the peer group companies we referenced with regard to 2018 compensation were below the market capitalization range criterion. Nevertheless, we concluded that because those companies satisfied the other criteria used in our selection process and possess meaningful business similarities, their continued inclusion in the peer group was appropriate.
The peer group companies used in connection with the compensation committee’s assessment of competitive compensation, which occurred in November 2017, were the following:
AAR Corp. | Esterline Technologies Corporation | |||
A. Schulman, Inc. | H.B. Fuller Company | |||
Albemarle Corporation | Moog Inc. | |||
Barnes Group Inc. | Orbital ATK, Inc. | |||
| Rockwell Collins, Inc. | |||
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| Crane Co. | Teledyne Technologies | ||
| Woodward, Inc. |
General Industry Survey
This is the same peer group that we used with respect to the determination of 2017 compensation, except for the elimination of B/E Aerospace, Inc., as this company was acquired by Rockwell Collins, Inc. in April 2017.
Other Data
In addition to comparator group data, theThe committee also reviewed marketcompensation data for each NEO on base, target bonus and total direct compensation from the Equilar Total Compensation Report, (“Equilar”), an executive compensation survey.survey which aggregates information from over 5,000 companies in various industries. The Equilar surveydata was used to compare each of our NEOsnamed executive officers with those in the same or similar position in companies with revenues similar to Hexcel. While we rely primarily uponIn addition, the comparator group data,compensation committee referenced the committee uses the Equilar data as a secondary reference to ensure that our compensation practices are similar to those in a broader industry index of companies with similar revenues. As a third reference point, the committee also considers theWillis Towers Watson 2017 General IndustryIndustrial Executive Database,Survey, a large compensation survey of hundreds of companies in various industries, including aerospace, chemicals, automotive and defense. Neither the committee nor the company has any input into the scopeas well as a subset consisting of the companies included in the survey.Aerospace & Defense Companies within that survey, comprising 52 companies. Due to the breadth of companies in the survey, we size adjust the data based on our revenue for purposepurposes of comparison.
Use of Company Performance inComparative Data
While we view competitive market information as a helpful reference, this information is not the sole determinant of our Compensation Programs
We provide the opportunity for both cash and stock incentives based on achievement of performance goals. Cash awards are available under the MICP. PSAs are earned over a three-year performance period and are granted under our general long-term incentive plan that provides for the granting of various stock-based awards. Our compensation committee considers and grants MICP and stock-based awards on an annual basis. With input from management and the consultant, and following management’s presentation to the board of a five-year strategic review and current year business plan, the committee selects performance metrics and goals and determines the relationship between the achievement of performance and the size of the award payable at threshold, target and maximum performance levels. The selected metrics and goals are intended to incentivize high levels of achievement consistent with our overall business objectives for the performance period.
Use of Individual Performance in our Compensation Programs
CEO
Each year the committee establishes individual performance objectives for the CEO, and evaluates the CEO’s performance against the objectives for the preceding year. The CEO’s MICP award opportunity is based solely on company performance. However, the committee considers achievement of his individual objectives in deciding whether to exercise negative discretion to reduce his MICP award and in setting his target compensation for the subsequent year. At least twice annually, the full board of directors reviews the CEO’s performance, and the lead director then discusses the board’s assessment with the CEO. This assessment includes a review of overall performance of the company, the degree to which strategic objectives are being met, leadership accomplishments, and other factors deemed relevant to the CEO’s performance. The consultant assists the committee in evaluating competitive CEO compensation data and potential compensation actions that could be taken in light of this performance. Our compensation committee charter requires that all decisions regarding CEO compensation be ratified by our independent directors. The CEO has no role in setting his ownexecutive compensation.
Other NEOs
Each year, the CEO establishes individual performance objectives for the other NEOs and evaluates their performance against the objectives for the preceding year with additional input from the board. MICP award opportunities for Messrs. Pensky, Krakower and Hennemuth are based solely on company performance, subject to the committee’s authority to exercise negative discretion to reduce an NEO’s MICP award. Mr. Merlot’s MICP award is based 70% on company performance and 30% on performance objectives set by Mr. Stanage at the start of each year. The committee receives the CEO’s assessment of each NEO’s overall performance, criticality to business strategy, career potential, and retention risk. For each NEO, the CEO makes recommendations regarding the MICP award and compensation for the next year. These recommendations are reviewed with the consultant, who advises the committee on the reasonableness of the recommendations relative to competitive norms. While the committee gives appropriate weight to competitive data and the CEO’s recommendations, the committee ultimately exercises its judgment based on the committee’s assessment of the performance of each NEO.
Committee’s Use of Tally Sheets
As part of the committee’s review of the annual target compensation of the NEOs, the committee reviews “tally sheets” for each of the NEOs which reflect base salaries, annual bonuses and equity awards plus other forms of compensation such as employer contributions to our qualified andnon-qualified deferred compensation plans, health insurance, and perquisites. With the assistance of the consultant, the committee also
uses the tally sheets to provide assurance that our compensation programs are reasonable and in line with industry practices. In addition to the tally sheets, the committee reviews various termination scenarios for our NEOs.
2016 Executive Compensation Decisions
In establishing appropriate compensation opportunities for NEOs,the named executive officers, the committee considers a variety of factors, such as, but not limited to, depth of experience, tenure in position, past performance, internal equity, retention risks and market data. We consider total compensation as well as each component of total compensation against the comparator group. See “The Process for Setting Compensation—Competitive Assessment” on page 29 of this proxy statement. For 2016,2018, target compensation for each NEO fell between the median and 75th percentilenamed executive officer was positioned within a competitive range of the comparator group, reflecting the experience of several of our NEOs as well as their sustained good performance.
Applying these factors, the committee determined that 2016 executive compensation would consist of four primary components—salary, short-term cash incentive, long-term equity incentives and a benefits package. The following chart shows each NEO’s salary, target cash incentive under the MICP, and target equity awards in 2016, in each case as a percentage of the NEO’s salary, and the percentage increase in the percentage target for the component over the prior year. For purposes of calculating the percentages in the chart, the value of each equity award is determined in the same manner used to determine the grant date values appearing in the last column of the Grants of Plan-Based Awards in 2016 table on page 45.market median.
NEO | Salary | % Increase from 2015 | Target MICP Award as Percentage of Salary | Percentage Point Increase in Target Percentage from 2015 | Grant Date Fair Value Equity Awards as Percentage of Salary | Percentage Point Increase in Target Percentage from 2015 | ||||||||||||||||||
Nick L. Stanage | $ | 930,000 | 5.1% | 100% | 0% | 290% | 30% | |||||||||||||||||
Wayne C. Pensky | $ | 508,430 | 5.0% | 75% | 0% | 185% | 0% | |||||||||||||||||
Ira J. Krakower | $ | 423,288 | 3.0% | 70% | 0% | 150% | 5% | |||||||||||||||||
Robert G. Hennemuth | $ | 402,332 | 3.7% | 60% | 0% | 140% | 0% | |||||||||||||||||
Thierry Merlot* | $ | 320,633 | 11.5% | 55% | 5% | 75% | 0% |
Salaries Salary increases for named executive officers ranged from approximately 3% to 6%. Messrs. Stanage and Hennemuth, and Ms. Lehman each received a base salary |
The committee considered the following factors, among others, in determining the initial 2016 compensation of each of our NEOs:
Nick L. Stanage:3%. Mr. Stanage receivedMerlot’s salary increased by approximately 6%. Mr. Winterlich did not receive an increase in 2018, as he was promoted to Executive Vice President and Chief Financial Officer in September 2017, at which point his total compensation that reflected his continued success inbase salary for 2018 was determined. In approving the role of CEO andsalary increases for the company’s sustained strong performance during his tenure.named executive officers other than Mr. Stanage, successfully led our continued growth through new product introductions, strategic investments and technical collaborations, increased operational efficiency and successful management of our capital expansion programs. He oversaw efforts to increase our organizational capability to support growth through human capital acquisitions, increased customer engagement and the continuous improvement of our operational processes in the areas of safety, quality,on-time delivery, productivity and velocity.compensation committee considered Mr. Stanage continued to lead efforts to further align the company’s technology development efforts with customer needs, resulting in long-term agreements with key customers for new productsStanage’s recommendations, which were based on new aerospace and industrial programs. In addition, Mr. Stanage continued to oversee the development of the company’s strategic planning, business development and succession planning processes.
Wayne C. Pensky: The increase in Mr. Pensky’s total compensation recognized his leadership of the finance function that contributed to the company’s overall excellent financial performance. Mr. Pensky successfully implemented new borrowing strategies (including the issuance of $300 million of publicly traded notes) that diversified our debt structure, implemented cash management and tax strategies that resulted in substantially decreased interest expense and provided significant tax savings and benefits. Mr. Pensky also directed our financial reporting efforts as the company met its internal and external reporting deadlines without experiencing any significant deficiencies with respect to internal controls, led efforts to improve management of our capital structure through the initiation of dividends for the first time in more than 20 years and share repurchases, managed the finance function to change with the organization and managed costs and operating performance to help achieve record profitability.
Ira J. Krakower: Mr. Krakower’s compensation reflected his effective management of the legal, intellectual property, and international trade control functions, including litigation strategies, counselling the board and management on matters of governance, as well as his oversight of the adoption and implementation of the company’s compliance policies pertaining to ethical conduct of business. He also provided experienced counsel on mergers and acquisitions and global tax strategies, and he provided valuable input into the company’s strategic direction and assessment of opportunities for expansion.
Robert G. Hennemuth: Mr. Hennemuth’s compensation for 2016 was increased in recognition of his leadership of the company’s executive and leadership development and succession planning activities, including the launch of the company’s first career pathing program, recruitment and retention strategies, as well as the supportevaluations he provided to the compensation committee, on matters of executive compensation and to the nominating and corporate governance committee on matters related to board composition and director succession planning. In addition, Mr. Hennemuth was instrumental in supporting various corporate communication, business development and diversity outreach activities, ongoing deployment of advance functionality of human resources software solutions, and led a project to drive improved cross-functional alignment in integrated supply chain activities.
Thierry Merlot: Mr. Merlot was appointed President, Aerospace – EMEA/AP effective May 1, 2016, at which time he became an executive officer. Upon his appointment, his compensation was increased to reflect the additional responsibilities commensurate with the position, as well as data indicating how the salaries of the named executive officers compared to salaries indicated by the peer group data (where available), and survey data. Mr. Merlot’s base salary was increased by 6% in light of his long-tenured leadershipstrong performance, his strategic influence within the company, and excellent relationships with key customers across Europe,his relative position compared to the Middle East and Asia.survey data considered by the compensation committee.
MICP Awards
22 | HEXCEL CORPORATION | 2019 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS
Management Incentive Compensation Plan
The MICP is a stockholder-approved plan that providesdesigned to provide an incentive for eligible participants to help us advance our annual cash incentivebusiness objectives. Participants, including the named executive officers, are given the opportunity to select key employees includingobtain cash payouts based on our achievement with respect to specified financial measures.
Target Award Opportunity
We provide target award opportunities for our named executive officers based on a percentage of their salary. For those named executive officers on our executive committee (Messrs. Stanage, Hennemuth and Winterlich, and Ms. Lehman), the NEOs.actual amount received was based entirely upon our performance with regard to the financial measures. For Mr. Merlot, 70% of the target award was based on our performance with regard to the financial measures and 30% was based on achievement of individual goals and objectives. Because of the strong interdependency among our leadership team members for performance of their individual objectives, variations from target award payouts with respect to individual objectives are limited to specific superior or subpar individual performance. However, our overall award pool for MICP awards is based solely on our achievement with respect to the financial metrics. While individual performance can increase or decrease an award, the overall award pool does not increase or decrease as a result. The cash incentivefollowing table shows the target award payout amountsopportunities for 2016 appeareach of our named executive officers with respect to our 2018 MICP:
Name | Salary | Percentage of Salary | Target Award Opportunity | ||||||
Nick L. Stanage | $986,637 | 100 | % | $986,637 | |||||
Patrick J. Winterlich | $425,000 | 65 | % | $276,250 | |||||
Gail E. Lehman | $424,875 | 60 | % | $254,925 | |||||
Robert G. Hennemuth | $426,834 | 60 | % | $256,100 | |||||
Thierry Merlot(1) | $377,021 | 55 | % | $207,361 |
(1) | Mr. Merlot’s cash compensation is paid in euros. In determining the dollar amount of his target award opportunity, we converted Mr. Merlot’s salary to U.S. dollars at an exchange rate of 1.14 dollars per euro, which is based on the exchange rate in effect as of December 31, 2018. |
Financial Measures Used in the MICP
In 2018, we used three financial measures in connection with the MICP: Adjusted EBIT (earnings before interest and taxes), Adjusted Diluted Earnings Per Share (“Adjusted Diluted EPS”) and Cash from Operating Activities. We used the same measures in our MICP for 2017 (subject to certain clarifying definitional changes) and, as was the case in 2017, we weighted the measures equally. We believe the financial measures and weighting of those measures have effectively incentivized strong financial performance.
How Did We Calculate The Financial Measures?
Adjusted EBIT
n | Adjusted EBIT is operating income from continuing operations of the company and its subsidiaries plus expenses attributable to merger and acquisition (“M&A”) activities (including expenses with respect to M&A activities that are abandoned), plus business consolidation and restructuring expense, plus severance costs and plus (minus) other expense (income), net, as reported in our consolidated statement of operations. |
n | For the 2018 calculation of Adjusted EBIT, we excluded an aggregate of $12.7 million of expenses, which related to restructuring and severance costs, and M&A activities. |
Adjusted Diluted EPS
n | Adjusted Diluted EPS is Adjusted EBIT, as defined above, minus interest expense (except as noted below), minus the provision for income taxes, plus (minus) equity in earnings (losses) from our interests in affiliated companies and partnerships, the sum of which is divided by the weighted average number of diluted common shares reported in the prior fourth quarter earnings release. We make further adjustments to the income tax provision to exclude any one-time tax adjustments that relate to prior years or changes in the tax law, the tax effects of the adjustments we made in calculating Adjusted EBIT, as defined above (and identified in our earnings releases), and the after-tax effect of interest expense related to borrowings we made to repurchase our shares during the year. |
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COMPENSATION DISCUSSION AND ANALYSIS
n | In addition to reflecting the after-tax effect of the adjustments to Adjusted EBIT noted above, we excluded the $0.12 increase in EPS caused by (i) the release of a valuation allowance in a foreign jurisdiction and release of reserves for uncertain tax positions, and (ii) the change in valuation of our deferred tax assets and liabilities resulting from the enactment of the Tax Cuts and Jobs Act (the “TCJA”) on December 22, 2017. |
Cash from Operating Activities
n | Cash from Operating Activities is net cash provided from operating activities of continuing operations for the period from October 1, 2017 through December 31, 2018. |
n | We use a 15-month measurement period because we believe it enhances period-to-period comparability for this particular financial measure. By beginning the period in the fourth quarter of the prior year, we avoid the impact of year-end adjustments, such as adjustments to payables and receivables, which might otherwise result in variability that does not reflect management’s performance. |
n | In 2018, we adjusted Cash from Operating Activities to exclude $8.7 million attributable to the enactment of the TCJA. |
Why Do We Use These Financial Measures?
n | We believe Adjusted EBIT provides an appropriate focus on our operating income while excluding factors (interest and taxes) that generally do not reflect the day-to-day management of our operations. In addition, Adjusted EBIT provides a good indication of the extent to which sales increases in a challenging sales and pricing environment affect our operating income. We make additional adjustments to this measure to exclude items that do not relate to the performance of our executive officers, such as acquisition- and divestiture-related costs, restructuring costs and costs associated with reductions-in-force. These adjustments enable our management to focus on long-term benefits in making certain decisions that may have a short-term impact on cost. |
n | We believe Adjusted Diluted EPS provides a good indication of the overall performance of our enterprise. We also believe that Adjusted Diluted EPS is a key financial measure used by investors, and by including it within the MICP, we better align our performance with investor expectations. We eliminate the after-tax effect of interest expense related to borrowings we made to repurchase our shares because we base our calculation of Adjusted Diluted EPS on the weighted average number of diluted common shares reported in the prior fourth quarter earnings release. Because our subsequent repurchases of common stock do not affect the weighted average number of diluted shares we use for purposes of the calculation, we believe that it is not appropriate to reflect the after-tax effect of interest expense incurred with respect to those repurchases. We eliminated the increase in diluted earnings per share resulting from (i) the release of a valuation allowance in a foreign jurisdiction and release of reserves for uncertain tax positions, and (ii) the change in valuation of our deferred tax assets and liabilities resulting from the enactment of the TCJA, because this increase did not reflect our operating performance. |
n | We believe Cash from Operating Activities addresses a key metric for our stockholders and an important performance element of our operations, namely our ability to fund capital expenditures, including expenditures to facilitate our expansion to meet forecasted customer requirements, fund research and technology expenditures and broaden our core product portfolio. |
MICP Targets and Awards
With regard to each of the MICP financial measures described above, an executive can receive an award only if a specified threshold level of performance is achieved; no award will be provided with respect to the financial measure if performance is below the threshold level. Once the threshold level of performance is achieved, the award can range from a minimum (threshold) of 50% to a maximum of 200% of the target award.
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COMPENSATION DISCUSSION AND ANALYSIS
For 2018, the target established for each performance measure and the performance, expressed as a dollar amount and as a percentage of target performance, that would entitle a participant to a threshold or maximum award with respect to each measure were as follows:
Performance Required (Dollar Amount and Percentage of Target Performance) for | |||||||||
Performance Measure | Target Performance | Threshold Award (50% of Target Award) | Maximum Award (200% of Target Award) | ||||||
Adjusted EBIT | $397 million | $357 million 90% | $437 million 110% | ||||||
Adjusted EPS | $2.99 | $2.69 | $3.29 | ||||||
90% | 110% | ||||||||
Cash from Operating Activities(1) | $531 million | $425 million 80% | $637 million 120% |
(1) | Covers the performance period from October 1, 2017 through December 31, 2018. |
The target and actual performance with respect to each financial measure, and the actual MICP award as a percentage of the target award with respect to each measure, is shown on the following table:
Performance Measure | Target Performance | Actual Performance | Actual Award as a Percentage of Target Award Opportunity for the Performance Measure | ||||||||
Adjusted EBIT | $397 million | $383.9 million | 83.8 | % | |||||||
Adjusted EPS | $2.99 | $3.07 | 126.9 | % | |||||||
Cash from Operating Activities | $531 million | $532.9 million | 101.8 | % |
As each measure is weighted equally, the MICP award provided to each named executive officer was equal to the average percentage of the target award achieved with respect to each of the measures, or 104.18% of the target award. As a result, aggregate payments to the named executive officers were as follows:
Name | Target Award Opportunity | Actual Award | ||||||
Nick L. Stanage | $986,637 | $ | 1,027,878 | |||||
Patrick J. Winterlich | $276,250 | $ | 287,797 | |||||
Gail E. Lehman | $254,925 | $ | 265,581 | |||||
Robert G. Hennemuth | $256,100 | $ | 266,806 | |||||
Thierry Merlot | $207,361 | $ | 216,029 |
The actual award payments to our named executive officers are reflected in the “Non-Equity Incentive Compensation” column of the Summary Compensation Table, under the“Non-Equity Incentive Plan Compensation” column. Under the plan, competitively-based cash incentive target amounts, expressed as a percentage of salary, are established for participants at the beginning of each year by the committee.
During meetings held in December 2015 and January 2016, the committee established the 2016 performance metrics described below for all participants in the MICP including our NEOs (there were 209 participants overall). The maximum award for each performance metric was 200% of the target award for that measure. The maximum consolidated award was 200% of the weighted average of the awards determined for each performance metric. Nothing is paid in respect of a performance metric if the threshold level for that measure is not attained. Cash incentive awards paid to NEOs for 2016 were determined based on the degree of attainment of these predetermined objective financial performance metrics, and for Mr. Merlot, also his personal performance objectives.
For 2016, performance was measured against three metrics: Adjusted EBIT, Cash from Operating Activities and Adjusted Diluted Earnings per Share, with each component given equal weight. This approach is
consistent with our MICP approach in 2015, as the committee continues to believe that this mix effectively aligns short-term incentives for plan participants with key financial metrics that are critical to the company’s long-term success.
The MICP provides for the grant of “qualified awards,” which are intended to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code (the “Code”), and for the grant of“non-qualified” awards, which are not intended to qualify as “performance based compensation” under Section 162(m). Seeappears below under the heading “The Impact of Tax Regulations on our Executive Compensation—Deductibility of Compensation—Section 162(m)“Executive Compensation.” for details on the impact of Section 162(m). At the end of the performance period, the committee has discretion to adjust a qualified award downward, but not upward, from the objectively determined level of attainment of the performance metric.Non-qualified awards can be adjusted upward or downward. In 2016, the committee did not exercise negative discretion in making MICP awards.
Equity Awards
Equity incentives foster the long-term perspective necessary for continued success in our business. They alsoAwards
Our equity awards are designed to promote achievement of longer-term corporate goals, align the interests of our NEOsnamed executive officers with stockholder intereststhose of our stockholders and areserve as an important element in our provision of compensation opportunities that are competitive with other companies seeking comparable executive talent.
Equity Incentive Award Opportunity
Similar to the process we use in determining the target award opportunity under the MICP, we base the named executive officers’ equity incentive compensation opportunity on a percentage of their salary, as indicated on the following table:
Name | Salary | Percentage of Salary | Equity Incentive Compensation Opportunity | |||||||
Nick L. Stanage | $986,637 | 330 | % | $ | 3,255,902 | |||||
Patrick J. Winterlich | $425,000 | 140 | % | $ | 595,000 | |||||
Gail E. Lehman | $424,875 | 135 | % | $ | 573,581 | |||||
Robert G. Hennemuth | $426,834 | 145 | % | $ | 618,910 | |||||
Thierry Merlot(1) | $377,021 | 95 | % | $ | 358,170 |
(1) | Mr. Merlot’s cash compensation is paid in euros. In determining the dollar amount of his equity incentive award opportunity, we converted Mr. Merlot’s salary to U.S. dollars using an exchange rate of 1.14 dollars per euro, which is based on the exchange rate in effect as of December 31, 2018. |
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COMPENSATION DISCUSSION AND ANALYSIS
Equity Awards Provided
Our equity incentive compensation for 2018 consisted of NQOs, RSUs and PSAs. For all named executive officers other than Mr. Stanage, the percentage of the equity incentive compensation opportunity allocated to each type of equity award was:
n | NQOs – 37.5% |
n | RSUs – 25% |
n | PSAs – 37.5% |
To further increase the proportion of pay for performance elements within Mr. Stanage’s compensation, we do not provide RSUs to Mr. Stanage. In lieu of RSUs, Mr. Stanage receives PSAs. PSAs constituted 62.5% of his equity incentive compensation opportunity; the remaining 37.5% was allocated to NQOs. As a result, 100% of Mr. Stanage’s long-term incentive compensation is tied to our performance or share price appreciation.
Non-Qualified Stock Options
In accordance with the equity award allocations described above, we granted NQOs to each of our goal to be competitive with peer companies. We make annual awardsnamed executive officers in 2018 based upon 37.5% of their respective total equity incentives to NEOs. Equity awards prior to May 2013incentive compensation opportunities. Using a Black-Scholes methodology, we valued the stock options, which were made under our 2003 Incentive Stock Plan (the “2003 ISP”). In May 2013, our stockholders approvedgranted on January 29, 2018, at $24.36 per share. As a result of this valuation, the adoptionnamed executive officers received NQOs for the respective numbers of the 2013 Incentive Stock Plan (the “2013 ISP”), which supersedes the 2003 ISP and governs all awards made after May 2013. On occasion we make unique individual awards to NEOs when special recognition is warranted. Under our equity award policy:underlying shares set forth below:
Name | Number of Shares Underlying NQOs | ||
Nick L. Stanage | 50,121 | ||
Patrick J. Winterlich | 9,159 | ||
Gail E. Lehman | 8,829 | ||
Robert G. Hennemuth | 9,527 | ||
Thierry Merlot | 5,610 |
Equity awards may be authorized only by the board, the compensation committee, or by
The options have an equity grant committee specifically authorized by the board or the compensation committee
The compensation committee has the discretion to authorize grants outside the policy when circumstances warrant
Theexercise price per share exercise price of a stock option shall not be less than the$68.15 (the closing price of aper share of our common stock, onas reported by the NYSE, on the date of grantgrant) and vest as to one-third of the underlying shares on each of the first three anniversaries of the date of grant.
The Summary Compensation Table reflects the aggregate grant date fair value of each named executive officer’s NQOs in the “Option Awards” column. See notes 2 and 3 to the Summary Compensation Table for further information.
Restricted Stock Units
We granted RSUs to each of the named executive officers other than Mr. Stanage. As noted above, RSUs were granted based upon 25% of the participating named executive officers’ total equity incentive compensation opportunity. We valued the RSUs in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), based upon the closing price per share of our common stock, as reported by the NYSE on the date of grant, January 29, 2018, which was $68.15 per share.
Based upon this valuation, we granted to the named executive officers the respective numbers of RSUs set forth below:
Name | Number of RSUs | ||
Nick L. Stanage | — | ||
Patrick J. Winterlich | 2,182 | ||
Gail E. Lehman | 2,104 | ||
Robert G. Hennemuth | 2,270 | ||
Thierry Merlot | 1,336 |
One-third of the RSUs vest and are converted into an equivalent number of shares of our common stock on each of the first three anniversaries of the date of grant, except for RSUs granted Mr. Merlot, a French national. In order to provide certain tax benefits under French law, the RSUs granted to Mr. Merlot vest and are converted with respect to two-thirds of the underlying shares on the second anniversary of the date of grant, and with respect to the remaining one-third of the underlying shares on the third anniversary of the date of grant. We also provide dividend equivalents, payable in additional RSUs. For each RSU then held by the grantee (including any RSU previously
26 | HEXCEL CORPORATION | 2019 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS
granted as a dividend equivalent), the dividend equivalent to be provided to the grantee will be equal to the per share value of any cash or stock dividend that we pay to holders of our common stock. RSUs granted as dividend equivalents vest in the same manner as the underlying RSUs to which they relate.
The Summary Compensation Table reflects the aggregate grant date fair value of each named executive officer’s RSUs, determined in accordance with FASB ASC Topic 718, in the “Stock Awards” column. See notes 1 and 2 to the Summary Compensation Table for further information.
Performance Share Awards
PSAs are designed to focus our executives’ efforts on specific long-term goals. Unlike our other equity awards, the actual number of shares, if any, ultimately awarded to a named executive officer is dependent upon our performance with respect to specified financial performance measures. We also provide dividend equivalents, payable in additional PSAs. For each PSA then held by the grantee (including any PSA previously granted as a dividend equivalent), the dividend equivalent to be provided to the grantee will be equal to the per share value of any cash or stock dividend that we pay to holders of our common stock. The PSAs granted as dividend equivalents convert into shares based upon our performance in the same manner as the underlying PSAs to which they relate.
As noted above, we allocated 37.5% of the equity incentive opportunity for each named executive officer other than Mr. Stanage to PSAs; we allocated 62.5% of Mr. Stanage’s equity incentive award opportunity to PSAs.
We determined the number of PSAs to be awarded assuming target performance and valued the PSAs based upon the closing price per share of our common stock, as reported by the NYSE on the date of grant, January 29, 2018, which was $68.15 per share. The per share price was equivalent to the fair value of the PSAs on the date of grant, determined in accordance with FASB ASC Topic 718.
Based upon this valuation, the target amount of shares underlying PSAs received by each of the named executive officers is set forth below:
Name | Number of Shares Underlying PSAs at Target Performance | ||
Nick L. Stanage | 29,859 | ||
Patrick J. Winterlich | 3,274 | ||
Gail E. Lehman | 3,156 | ||
Robert G. Hennemuth | 3,405 | ||
Thierry Merlot | 2,005 |
Financial Measures Used in Connection with the PSAs
We used two long-term financial measures in connection with the PSAs granted in 2018: ROIC (return on invested capital), weighted at 67% of the total target award opportunity under the PSAs, and Relative EPS Growth, weighted at 33% of the total target award opportunity under the PSAs. We used the same financial measures (subject to certain adjustment modifications described below with respect to ROIC) and weightings in 2018 as we used for PSAs granted in 2017.
How Do We Calculate the Financial Measures?
ROIC
n | ROIC is designed to measure the three year average return on invested capital, calculated in accordance with the following formula: |
Average (EBIT x (1-tax rate) + equity in earnings of equity method investees in 2018, 2019 and 2020) | ||
Average (debt (current & long-term) + equity - cash and cash equivalents at December 31, 2017, 2018, 2019 and 2020) |
n | We adjust EBIT to exclude expenses attributable to M&A activities (including expenses with respect to M&A activities that are abandoned), business consolidation and restructuring expense, severance costs and other expense (income), as reported in our consolidated statement of operations. In 2018, we modified the adjustments to correspond to adjustments made with respect to Adjusted EBIT in the MICP. |
n | For purposes of the calculation, we adjust the tax rate to exclude certain items, consistent with the calculation of adjusted net income in our earnings releases. |
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COMPENSATION DISCUSSION AND ANALYSIS
n | We exclude from the denominator with respect to the relevant year the effect of our investment in third parties during that year and balance sheet effects of adjustments for other one-time events excluded from EBIT. |
n | Information with respect to performance targets for the ROIC metric during the pendency of the performance period is not considered material to an understanding of our compensation arrangements and is not addressed in this discussion because it represents confidential business or financial information that we do not otherwise disclose to the public. Disclosing this information could cause significant competitive harm to the company. We believe our performance target for the ROIC measure was set at an appropriate level at the beginning of the performance period to be challenging, but sufficiently realistic to motivate the performance of our executive officers. We will disclose information with respect to the ROIC threshold, target and maximum payout opportunities, and the actual number of shares awarded, in our proxy statement for the annual meeting in the year following conclusion of the performance period. |
Relative EPS Growth
Relative EPS Growth is based on the extent to which the growth rate in our diluted earnings per share from continuing operations, calculated and presented in accordance with GAAP (“GAAP EPS”), during the performance period from October 1, 2017 through September 30, 2020 exceeds the growth rate in the GAAP EPS of the companies included in the S&P MidCap 400 Index for the same 36-month period. At the conclusion of the performance period, the growth rate in GAAP EPS for the company and for each company included in the S&P MidCap 400 Index, expressed as a percentage, is calculated as follows:
GAAP EPS for the 12 months ended September 30, 2020—GAAP EPS for the 12 months ended September 30, 2017 | × 100 | ||
GAAP EPS for the 12 months ended September 30, 2017 |
Award payouts in connection with the Relative EPS Growth performance measure are based on the percentage of S&P MidCap 400 companies whose growth rate in GAAP EPS we exceed (referred to below as the “Performance Percentile”), as follows:
Award Level | Performance Percentile | Award Payout: Percentage of Target Award Opportunity | |||
Threshold | 40% | 50% | |||
Target | 55% | 100% | |||
Maximum | 75% | 200% |
In 2018, we changed our practice with regard to the performance period for the Relative EPS Growth financial measure. For the PSAs granted in 2017, Relative EPS Growth was based on the degree to which the growth rate in our GAAP EPS during the performance period from January 1, 2017 through December 31, 2019 exceeded the growth rate in the GAAP EPS of the S&P MidCap 400 companies for the 36-month period beginning and ending one fiscal quarter earlier than the beginning and end of the performance period applicable to the Hexcel (the “comparison period”). We used a one fiscal quarter earlier start and end for the comparison period to enable us to calculate the growth rate for each of the S&P MidCap 400 companies and determine the number of shares ultimately issuable under the PSA awards, in sufficient time to distribute the shares underlying PSA awards in the first quarter of 2020. However, in connection with the PSAs granted in 2018, as noted above, the performance period with regard to the growth rate in our GAAP EPS started on October 1, 2017 and will end on September 30, 2020. As a result, the performance period for the growth rate in our GAAP EPS will be aligned with the comparison period for the S&P MidCap 400 companies. We made this change in order to avoid the potential distortion that would occur if our GAAP EPS at the beginning of the performance period reflected the financial statement impact of the enactment of the TCJA in the fourth quarter of 2017, while the GAAP EPS at the beginning of the comparison period for the S&P MidCap 400 companies would not reflect such financial statement impact.
To address possible changes in the composition of the S&P Midcap 400 during the performance period, we established the following guidelines:
n | If a company has negative earnings per share at the beginning or end of the comparison period, it is removed from the comparison. |
n | If a company is acquired by or merges into another company, it will be removed from the comparison; however, if the acquiring company is also an S&P MidCap 400 company, the acquiring company will remain in the comparison. |
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COMPENSATION DISCUSSION AND ANALYSIS
n | If an S&P MidCap 400 company consolidates with another company that is not an S&P MidCap 400 company, the consolidated company will not be included in the comparison. |
n | If a company becomes subject to bankruptcy proceedings, is delisted or subject to an event having a similar effect on trading in its securities, it will be deemed to have performance below those of other companies included in the comparison. |
Why Do We Use These Financial Measures?
n | We use ROIC because it reflects both our operating results and the effectiveness of management’s utilization of our assets. This measure is particularly important in light of continued substantial capital expenditures we expect to make during the performance period to meet forecasted customer requirements, as it underscores the importance of effective management of our ongoing expansions and manufacturing improvements. We adjust the tax rate in the ROIC computation and make adjustments for other items because we believe inclusion of those items could distort results in a manner that inappropriately rewards or penalizes management based on events largely beyond its control and generally not relevant to the year with respect to which the ROIC calculation is made. |
n | We use Relative EPS Growth as a financial measure because it introduces a comparative measure that conditions a portion of management’s long-term compensation on performance relative to other companies of similar market capitalization. We believe the relative nature of the Relative EPS Growth measure in the context of our long-term compensation is an important distinguishing element of this financial measure when compared to the Adjusted Diluted EPS measure that we use in connection with the MICP, in addition to the different lengths of time covered by the two measures. Moreover, the focus of the relative measure is on GAAP EPS, which is directly related to management’s overall performance with respect to our enterprise and is a key metric affecting our stock price and, therefore, stockholder value. |
Vesting of PSAs Granted in 2016
In 2016, as part of our long-term incentive plan, we granted PSAs to our named executive officers and other employees for the 2016-2018 performance period. The number of shares issuable upon vesting was based on our performance with respect to the two separate financial measures shown on the following table:
Financial Measure | Weighting at Target | ||
ROIC | 75% | ||
EPS | 25% |
Our achievement with regard to the two financial measures is described below.
ROIC– This financial measure generally was calculated in the same manner as described above for PSAs granted in 2018, except that the calculation covered periods and dates relevant to determining the average ROIC during the 2016-2018 period. We made additional adjustments to eliminate the increase in our equity resulting from the tax benefit realized due to the enactment of the TCJA, as well as to eliminate the effect of our investment in third parties for the year of investment and the impact of one-time restructuring costs.
The target award was payable if the average ROIC equaled 14.0%. The average of our ROIC for the 2016-2018 period was 13.85%, which resulted in an award attributable to ROIC that was equal to 94.1% of the target award.
EPS– This financial measure was calculated based upon the cumulative increase in our diluted earnings per share during the 2016-2018 period. Although the calculation and presentation of this measure typically is made in accordance with GAAP, the compensation committee reduced EPS to eliminate the benefit resulting from adoption of the TCJA because the benefit does not reflect our operating performance, and eliminated the impact of one-time restructuring costs and M&A expenses. The target award was payable if EPS for the period was $8.38. Actual EPS for the period, adjusted as described above, was $8.64, which resulted in an award attributable to EPS that was equal to 151.1% of the target award.
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COMPENSATION DISCUSSION AND ANALYSIS
The weighted average award for the two financial measures was 108.3% of the target award; as a result, in January 2019, each of our named executive officers who were granted PSAs in 2016 received a number of shares of our common stock equal to 108.3% of the target amount of the shares underlying the PSAs granted to him, as indicated in the following table:
Name | Number of Shares Underlying PSAs at Target(1) | Number of Shares Issued Upon Vesting(2) | ||||||
Nick L. Stanage | 40,419 | 44,960 | ||||||
Patrick J. Winterlich | 1,277 | 1,419 | ||||||
Robert G. Hennemuth | 5,064 | 5,632 | ||||||
Thierry Merlot | 2,019 | 2,245 |
(1) | Messrs. Winterlich and Merlot were not named executive officers at the time the PSAs were granted; Ms. Lehman is not included in the table because she was not a Hexcel employee at the time the PSAs were granted. |
(2) | Includes additional shares representing dividend equivalents accrued during the performance period. |
Equity Grant Practices
In accordance with our equity award policy, equity awards, namely NQOs, RSUs and PSAs, are granted annually on the third full trading day after the financial results for the last completed fiscal year are released. Unless an exception is approved by the compensation committee, off-cycle equity awards are granted on the third full trading day after the financial results are released for a quarter. We value equity grantsRSUs and setPSAs, and fix the exercise price of an NQOfor our NQOs, based on the third trading day after we next release earnings following a grant authorization to allow the public market an opportunity to digest our most recent financial results and establish the fair market value of a shareclosing price of our common stock on the date of grant. The ISP prohibits the grant of backdated equity awards
In January 2016, we used three forms of equity incentives granted to the NEOs under the 2013 ISP: NQOs,Our RSUs and PSAs. At its meetingNQOs vest in January 2016, the committee approved the dollar value of each NEO’s aggregate equity award for 2016 as a percentage of the NEO’s salary for 2016, and approved the forms in which the awards would be granted. The committee considered the appropriateness of our long-term incentive award metrics and percentage mix of our long-term incentive awards based upon our compensation philosophies and review of our peer group practices and, with guidance from the compensation consultant, determined that the mix of types of awards for 2016 would be:
Mr. Stanage: 37.5% NQOs; 62.5% PSAs
Messrs. Pensky, Krakower, Hennemuth and Merlot: 37.5% NQOs; 25% RSUs; 37.5% PSAs
This is consistent with the mix of awards granted in 2015. The committee continues to believe that it is important that a substantial portion of the long-term awards be made in the form of performance-based awards
tied to specific company performance metrics, to more closely align the interests of our NEOs with those of our stockholders and to bring our compensation practices in line with the market trends towards greater emphasis on performance-based equity compensation.
Valuation
On January 26, 2016 (the grant date for such awards as determined in accordance with our equity award policy), the dollar values were converted into a number of NQOs, RSUs and PSAs basedequal increments on the valuation methodology used by us to determine accounting expense for the fair valuefirst three anniversaries of the awards under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The RSUs and PSAs were valued, for each share they represented, at the closing price of our common stock on the NYSE on January 26, 2016 ($41.71). The value of both the RSUs and PSAs was not discounted to reflect that the awards vest over time, nor were the PSAs discounted to reflect the degree of difficulty of attaining the applicable performance goals. The NQOs awarded to NEOs were valued at $15.61 for each share based on a Black-Scholes value determined as 37.4% of the closing price of a share of our common stock.
Non-Qualified Stock Options
NQOs have an exercise price equal to the closing price of our common stock on the NYSE on the grant date, typically have a term of ten years and vest ratably over three years. Because financial gain from NQOs is only possible if the price of our common stock increases during the term of the NQO, we believe grants encourage NEOs and other employees to focus on behaviors and initiatives that should lead to a long-term increase in the price of our common stock, which aligns the interests of our NEOs and other employees with those of our stockholders.
Restricted Stock Units
RSUs represent units that generally vest and convert into shares of our common stock on aone-to-one basis ratably over three years. Because RSUs are valued at the closing price of common stock on the date of grant, a grant of equity award value in the form of RSUs results in the issuance of fewer shares and less dilution than would result from providing the same value in the form of NQOs. RSUs are also an important vehicle to attract executive talent and to enhance retention of key employees.except for RSUs granted after January 1, 2014 provide for the accrualto our French employees, including Mr. Merlot. The RSUs granted to our French employees vest as to two-thirds of dividend equivalents on the shares underlying the award. Any accrued dividend equivalents are paid only to the extent that the underlying awards vest. The company began paying a quarterly dividend of $0.10 per share in the first quarter of fiscal 2015 and increased the dividend to $0.11 per share beginning with the second quarter of fiscal 2016.
Performance-Based Share Awards
PSAs provide an opportunity to receive a number of shares of our common stock based upon achievement of a measure of our performance over a multi-year period. There is a threshold, target and maximum number of shares that can be earned over the performance period. The maximum number of shares that can be earned is 200% of target. PSA grants encourage NEOs and other employees to focus on improved long-term financial performance and increases in the price of our common stock. The PSAs granted after January 1, 2014 also provide for the accrual of dividend equivalents on the shares underlying the award. Any accrued dividend equivalents are paid only to the extent that the underlying shares on the second anniversary of the date of grant, and the remaining one-third of the underlying shares on the third anniversary of the date of grant. PSAs vest in the year following the performance period, after certification of performance results by the compensation committee. We believe that these vesting terms, together with award opportunities under our PSAs, provide our executives with a meaningful incentive for continued employment. Our board of directors has delegated to Mr. Stanage, as sole member of our Equity Grant Committee, authority to grant equity awards on a discretionary basis. Mr. Stanage was provided this authority with respect to 100,000 shares in 2018. These grants may be made only to persons who are earned.not executive officers, and no grant exceeding 10,000 shares may be made to any person in a single year. In 2018, Equity Grant Committee awards were made only with respect to an aggregate of 14,400 shares underlying RSUs.
Since 2012, the company has used Return on Invested Capital,
Personal Benefits
We have ceased providing personal benefits to newly hired or “ROIC,”appointed named executive officers, including Messrs. Stanage and Winterlich, and Ms. Lehman, but we continued to measure our long-term success. ROIC is based onafter-tax results,provide limited personal benefits to Mr. Hennemuth and Mr. Merlot. Mr. Hennemuth receives a $12,000 annual automobile allowance and an additional $5,600, which is intended to be used for club membership dues, financial counseling and tax planning and preparation, and supplemental life insurance beyond the way investors evaluatebasic life insurance available to our performance. ROIC incentivizesU.S.-based employees. This allowance is provided only if actually used, and no part of the efficient useallowance may be used as a reimbursement for taxes due on the income recognized by the named executive officer as a result of assets to improvereceiving these personal benefits. In accordance with local practices for French employees, Mr. Merlot, who is a resident of France, receives an automobile allowance, which was $9,412 in 2018.
The compensation committee reviews the return we earn onpersonal benefits annually.
Additional information regarding personal benefits for our investmentsnamed executive officers is provided in the “All Other Compensation” column of the Summary Compensation Table and provides alignment withthe accompanying footnotes.
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COMPENSATION DISCUSSION AND ANALYSIS
Ongoing and Post-Employment Arrangements
We have several plans and agreements addressing compensation for our strategic plan to achieve long-term growth in net earnings.
Whilenamed executive officers that accrue value as the committee believes that the use of ROIC to measure long term performanceexecutive continues to work for us, provide special benefits upon certain types of termination events and provide retirement benefits. These plans and agreements were designed to be appropriate duea part of a competitive compensation package that encourages our executives to remain employed by us. In some cases, the importance of ROICplans described below are available to investors, in 2015 it added a second metric, cumulative GAAP earnings per share, or “EPS,” in orderother employees as well.
Hexcel Corporation 401(k) Retirement Savings Plan
Under our 401(k) Retirement Savings Plan, referred to more closely align operational performance with external expectations. EPS growth is a good indicator of overall company performance and is one factor used by investors to assess company performance. Therefore, introduction of this second metric aligns executive performance with stockholder interests and complements the ROIC metric during a period of significant capital expenditures. This results in an award structure which not only encourages the efficient use of capital, but also incentivizes the attainment of cumulative earnings over the performance period.
2016-2018 PSAs
For the 2016-2018 PSAs, the number of shares earned will be determined using two metrics: ROIC, weighted at 75%, and Cumulative Earnings per Share, weighted at 25%. Each metric will be calculated over the three-year period ending December 31, 2018.
ROIC is definedbelow as the average return for 2016, 2017 and 2018 divided by the average invested capital as of December 31, 2015, 2016, 2017 and 2018, and will be calculated in the same manner as for prior PSA awards (see explanation under the heading “Performance Share Awards”).
Cumulative Earnings per Share is defined as the sum of the Company’s consolidated diluted earnings per share for the fiscal years ending December 31, 2016, 2017 and 2018, presented in conformity with GAAP.
The following chart indicates the awards payable for 2016-2018, as a percentage of target awards, at various levels of attained combined ROIC and Cumulative Earnings per Share:
2016-2018 PSA
Payout Schedule
ROIC and EPS target levels were established by the committee in late 2015 and early 2016 after review of the strategic plan for 2016-2018. The committee also took into account the fact that the company had consistently achieved ROIC in excess of most of its industry peers. Target levels chosen were challenging, yet attainable, giving consideration to:
The forecasted level of sales based on our customers’ announced build rates
The probability of a change in sales in the event of increases or decreases to forecasted aircraft build rates or delays or accelerations in new programs
Our planned capital investments in new manufacturing plants and capacity during the period and the corresponding increase in depreciation
Our objective of achieving a return on capital greater than our cost of capital
Our employees are offered participation in a variety of retirement, health and welfare, and paidtime-off benefit plans which promote employee well-being and retention. Our NEOs may participate in these plans to the same extent as our other employees. These plans may be subject to tax and regulatory restrictions that may limit benefits payable under the plan or impose adverse consequences if benefits are paid based on compensation above certain levels. These plans play an important role in keeping us competitive in attracting and retaining officers.
Qualified 401(k)“401(k) Plan,
Our qualified 401(k) Plan allows” substantially all USof our U.S. employees tomay contribute up to 75% percent of their cash compensation. The plan further provides:
that employee contributions and earnings thereon are 100% vested at all times
for acompensation (subject to applicable Internal Revenue Code limits). We match 50% company match onof employee contributions up to a maximum of 6% of totalthe employee’s cash compensation,
for a discretionary profit sharing contribution into the plan annually as determined by the compensation committee
for a and provide an annual fixed contribution of an additionalequal to 2% of each employee’sparticipant’s cash compensation each year, or 4%(4% for U.S. employees who were 45 years of age on or before December 31, 2000old and employed by us ason December 31, 2000). The 401(k) Plan also provides a profit-sharing feature under which we may make an annual contribution to the account of such dateeach U.S. employee based on our performance during the preceding year; for 2018, the contribution was 3% of an employee’s cash compensation.
for all matching, discretionary and fixedAll of our contributions and earningsvest incrementally over the first five years of service. Amounts credited to vest at the ratean employee’s account may be invested in a number of 20% for each year of service with us—meaning that all contributions are fully vested after five years
One of the investment options infunds. Although the 401(k) plan isPlan offers to employees the opportunity to invest our contributions (but not their own) into a Hexcel stock fund. Seniorfund, our senior executives, including all theUS-based NEOs,U.S.-based named executive officers, are not permitted to invest in thisthe fund. Other employees may only invest company contributions, and not their own contributions and earnings, in the Hexcel stock fund.
Amounts contributed by the companythat we contribute to the 401(k) Plan on behalfaccounts of theUS-based NEOs named executive officers are included in the “All Other Compensation” incolumn of the Summary Compensation Table on page 43.Table.
Nonqualified
Non-Qualified Deferred Compensation Plan
OurUS-based NEOs areUnder our Non-Qualified Deferred Compensation Plan (the “NDCP”), eligible to participate in the nonqualified deferred compensation plan (“NDCP”). The NDCP is an unfunded plan that permitsU.S.-based employees, with compensation above the IRS limits permitted underincluding our qualified 401(k) plan to continue toU.S.-based named executive officers, may defer a percentage of their pay and receive Hexcel matching and profit sharing contributions. Terms of the plan are as follows:
participants can defer any amountamounts of their cash compensation (salary and cash incentive award) onin excess of Internal Revenue Code limits applicable to our 401(k) Plan, referred to below as “excess compensation.” We match 50% of apre-tax basis
all of our matching participant’s contributions are made on the same 50% basis as described above with respect to the qualified 401(k) plan, but only with respect to the participant’s deferrals under the NDCP, up to 6% of their compensation inthe participant’s excess ofcompensation. We also provide the compensation taken into account for purposes of determiningsame fixed and profit-sharing contributions with respect to the qualified 401(k) plan
all of our other contributions—discretionary profit-sharing, and fixed contributions—are madesuch excess contributions on the same basis as described above with respect to the qualified 401(k) plan, but only with respect to the amount of the participant’s compensation in excess of the amount used for purposes of determining contributions to the qualified 401(k) plan
employeePlan. All participant and companyHexcel contributions are 100%fully vested at all timestimes.
Amounts credited to a participant’s account may be invested in a number of notional funds based upon the investment options generally mirror those available in our qualified 401(k) plan, except thatfunds, other than the Hexcel stock fund, is not an optionavailable under the 401(k) Plan.
distributions are in a lump sum or in a series of monthly, quarterly or annual installments after termination of service, as elected by the employee
in-service distributions are generally prohibited except in the case of an unforeseeable emergency
loans from the NDCP are prohibited.
See “Nonqualified“Executive Compensation – Non-Qualified Deferred Compensation in Fiscal Year 2016”2018” on page 5245 below for details on ourUS-based NEOs’ participation in the NDCP.
Supplemental Benefits forUS-Based NEOsadditional information.
Other Benefits for Named Executive Officers
Supplemental Retirement Benefits
We have entered into the following supplemental retirement agreements with ourUS-based NEOs, which are described on pages 49-52 under “Pension Benefits in Fiscal Year 2016”:
a supplemental executive retirement agreement (“SERP”) with Mr. Stanage and an executive deferred compensation agreement (“EDCA”) with Mr. Hennemuth that provide additional retirement benefits. The SERP provides benefits to Mr. Stanage based on a formula relating to years of service (subject to a maximum accrual once he attains the age of 65) and specified percentages of annual compensation, subject to offset for contributions we have made to certain other retirement plans. The EDCA generally provides benefits to Mr. Hennemuth based on a formula related to salary and cash incentive awards he has earned subsequent to the effective date of the EDCA. These agreements (“SERPs”)are described in more detail under “Executive Compensation – Pension Benefits in 2018,” below. We initially entered into these agreements in 2006 (with respect to the EDCA) and 2009 (with respect to the SERP). We have not entered into similar agreements with more recently designated named executive officers, and we would consider several factors, including the competitive compensation environment for executive talent, before we enter into such an agreement in the future.
Supplemental Death Benefit
Under agreements with Messrs. Stanage and Krakower
Hennemuth, and in accordance with our executive deferred compensation arrangements (“EDCAs”) with Messrs. Penskylife insurance program for Mr. Winterlich and Hennemuth
The committee periodically reviews these supplemental retirement benefits and would specifically reviewMs. Lehman, if the competitive aspect of this type of benefit upon a future NEO hire.
For each of ourUS-based NEOs, we providenamed executive officer dies while employed by us a death benefit so long as they continue towill be employed by usprovided equal to two times the sum of (i) the executive’s salary on the date of death and (ii) the average of the MICP awards paid to the executive in the three years (two years for Mr. Winterlich and Ms. Lehman) prior to death, up to a maximum of $1,500,000 for the named executive officer (other than Mr. Stanage.Hennemuth for whom there is no maximum death benefit). If the named executive officer’s death is accidental, an additional death benefit will be provided pursuant to our executive accidental death and dismemberment insurance program equal to two times the sum of (i) the executive’s salary on the date of death and (ii) the average of
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COMPENSATION DISCUSSION AND ANALYSIS
the MICP awards paid to the executive in the two years prior to death, up to a maximum of $1,000,000 for the named executive officer ($1,500,000 for Mr. Stanage). The named executive officers do not participate in our basic life insurance or accidental death and dismemberment insurance programs available to our U.S.-based employees. The death benefits provided under the SERP and the EDCA with Messrs. Stanage and Hennemuth are described in the discussions of each agreement under “Executive Compensation – Pension Benefits in 2018,” below.
Retirement Plans in which Mr. Merlot Participates
Mr. Merlot’s retirement benefits are governed by the terms of the collective labor agreement for the ChemicalTextile Industries in France (theand the Composites Local Company Agreement (together, the “French CLA”) and French social programs. Under the French CLA, Mr. Merlot is entitled to receive a retirement indemnity equal to four months’ salary, plus a six monthsix-month notice period (a three-month notice period if Mr. Merlot is under the age of 65) and a payment related to hisnon-competition obligations, unless such obligations are waived by Hexcelthe company upon his retirement. Mr. Merlot also receives a pension whichthat is funded by contributions from the company and Mr. Merlot as required by French regulations.
Severance Arrangements, Including Change of Control Provisions
We provide only limited perquisites tohave severance agreements with all of our NEOs, andU.S.-based named executive officers other than Mr. Stanage, does not participatewhose severance terms are governed by our Executive Severance Policy, coupled with certain terms set forth in our annual perquisites program. For eachhis offer of Messrs. Pensky, Krakower and Hennemuth, our perquisites program is designedemployment letter. We refer to provide specific benefits that will enhance retention. The committee reviews our perquisites program annually. Our perquisites program forUS-based NEOs provides for an annual car allowanceall of $12,000, and an additional annual allowance of up to $10,600 (for Messrs. Pensky and Krakower), and $5,600 (for Mr. Hennemuth), which is only paid if actually used. These amounts have not increased since 2000. The additional allowance may be used for:the foregoing documents collectively as the “Severance Arrangements.”
reimbursementThe Severance Arrangements provide payments and other benefits to a U.S.-based named executive officer if we terminate his or her employment for any reason other than disability or “cause” (as defined in the Severance Arrangement related to the named executive officer) or if he or she terminates employment for “good reason” (also as defined in such Severance Arrangement), except in circumstances related to a change in control, which are described in the next paragraph. With respect to the U.S.-based named executive officers, such payments and other benefits generally include a lump sum payment equal to the sum of club membership dues(or, in the case of Mr. Stanage, equal to 1.5 times the sum of) annual base salary and average annual bonus (generally with respect to the last three annual bonus amounts paid) under the MICP, as well as continued participation in several company health, welfare and other plans, or provision of equivalent benefits (“Continued Participation Benefits”) for one year (in the case of Mr. Stanage, 1.5 years).
expenses incurredIf we terminate the named executive officer for financial counselingany reason other than disability or cause, or the named executive officer terminates employment for good reason within two years after a “Change in Control” or during the period of a “Potential Change in Control” (each as defined in the Severance Arrangement relating to the named executive officer), we generally will provide a lump sum payment equal to 1.5 to 3 times the sum of annual base salary and tax preparationaverage annual bonus under the MICP, as well as Continued Participation Benefits for 1.5 to 3 years.
premiumsSee “Executive Compensation—Potential Payments Upon Termination or Change in Control” below for supplemental life and health insurance beyond the standard life and health insurance available to our executives
OurUS-based NEOs are not permitted to use any part of the additional annual allowance as a reimbursement for taxes due on the income recognized by theUS-based NEOs as a result of receiving these perquisites.information.
As anon-US based NEO, Mr. Merlot receives only a car allowance, in accordance with local practices for employees in France.
We believe that the perquisites we offerSeverance Arrangements promote management stability and encourage our U.S.-based named executive officers to focus their attention and energies on our NEOs are reasonablebusiness during potential periods of uncertainty. Absent such protections, there is an increased risk that executive officers will seek other employment opportunities if they become concerned about their employment security following or in amount.
Severance and Change in Control Arrangements
We agreed to provide certain payments, benefits or enhancements to ourUS-based NEOs as a resultanticipation of certain terminations of employment or upon a change in control. These benefits are designed to enhance our ability to attract and retain executives as we compete for talented individuals in a competitive marketplace. The principal benefits are the following, which are more fully described on pages 49-57. The committee periodically reviews these benefits and is mindful of market trends and advocacy regarding these benefits.
Severance Benefits Upon Termination of Employment
We provide payments and enhancements upon termination of employment of theUS-based NEO by us without cause or by theUS-based NEO for good reason. We believe that the level of benefits is both reasonable and competitive. Mr. Merlot’s separation benefit is determinedpayments to be made under the French CLA.Severance Arrangements provide some financial security to a named executive officer in the event that he or she is subject to a specified event of termination in the context of a change in control. Moreover, we believe the Severance Arrangements will facilitate a named executive officer’s support for a corporate transaction involving a change in control that is in the best interest of our stockholders, even though the transaction may have an effect on the named executive officer’s employment with us. We believe that these provisions, together with provisions calling for the lesser payments provided under the Severance Arrangements with respect to specified termination events outside of the context of a change in control, provide an important incentive for our named executive officers to remain with us.
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COMPENSATION DISCUSSION AND ANALYSIS
Severance Arrangements we entered into with certain of our named executive officers through 2013 provided for a “modified gross-up.” Under the modified gross-up, subject to the exception described below, if a named executive officer becomes liable for payment of any excise tax under Section 4999 of the Internal Revenue Code with respect to any payment received in connection with a change in control, we will make an additional payment to the named executive officer. This additional payment was designed so that, after payment of all excise taxes and any other taxes payable in respect of the additional payment, the executive would retain the same amount as if no excise tax had been imposed. However, we will not make the tax gross-up payment if the payment received in connection with the change in control is less than 110% of the amount that would not be subject to the excise tax; in that case, the payment to the named executive officer will be reduced to the extent necessary to avoid imposition of the excise tax.
Messrs. Stanage and Hennemuth previously entered into Severance Arrangements with us that provided for a modified gross-up. However, effective in 2014, Mr. Stanage relinquished his right to a modified gross-up. Mr. Hennemuth continues to have a Severance Arrangement that provides a modified gross-up.
We have determined that no newly hired or promoted executive will be eligible for tax gross-up payments in connection with our change in control arrangements. Accordingly, Severance Arrangements we entered into in October 2017 with our other U.S.-based executive officers do not provide for such payments.
Accelerated Vesting of Equity Awards in Connection with a Separation and Consulting Agreement with Mr. Krakower which sets forth the terms of Mr. Krakower’s departure from the company. A description of this agreement can be found on page 46.Change in Control
Single-Trigger Equity Vesting
We utilize “single-trigger” vesting for equity awards—which means theOur equity awards provide that they will vest upon a change in control. In adopting this approach,This is a so-called “single trigger” vesting provision, in contrast to the compensation committee considered the following:
“double trigger” provision applicable in our Severance Arrangements, which generally require both a single trigger on equity vesting can be an especially powerful retention device for senior executives during change in control discussions, as well as a specified employment termination event before payment is made.
In adopting the single trigger vesting provision for our equity representsawards, we considered, among other things, that because our equity awards represent a significant portion of total compensation,
the desire tosingle trigger would provide seniora strong incentive for executive retention and would provide executives with the same opportunity as stockholders have to realize value at the time of a change in control, consistent with the intended alignment of their interests to those of stockholders
the fact that the company may no longer exist after a change in control, or performance metrics may become misaligned with strategies formulated by new management or a new board
ModifiedGross-Up
Messrs. Pensky, Krakower and Hennemuth are entitled to receive a “modifiedgross-up” for excise taxes incurred on “excess parachute payments” for any excise tax incurred under Section 280G and Section 4999 of the Code in connection with athe change in control.
The modifiedgross-up provided by In this regard, we believe the company entitles an eligible NEO to receive agross-up payment for any excise tax incurred under Section 280G and Section 4999, but only ifprovision will focus the total “parachute payments” exceed such NEO’s safe harbor amount (the amount to which the NEO’s change in control payments would need to be reduced in order to avoid the imposition of the excise tax) by 10% or more. We have agreed to reimburse the NEOs for the excise tax as well as any income tax and excise tax payable by the NEO as a result of any reimbursements for the excise tax. If the NEO’s total “parachute payments” are less than 10% over the safe harbor amount, such NEO’s change in control payments will be reduced by an amount necessary to avoid the imposition of the excise tax.
Mr. Stanage’s severance benefits are subject to our Executive Severance Policy, which does not provide for agross-up payment for any excise tax incurred under Section 280G and Section 4999. See page 52 for a description of the Executive Severance Policy and its applicability to Mr. Stanage. No newly hired or promoted executives will be eligible forgross-up payments under 280G.
If a change in control and termination of employment occurred on December 31, 2016, noneattention of our eligible NEOs would have receivedexecutives in pursuing agross-up payment. transaction that is in the best interest of our stockholders.
We believe that when executives and directors own a meaningful amount of equity, it creates better alignment with stockholder interests, so we require all of our NEOs and directors to meet specifiedmaintain stock ownership guidelines for our common stock. Underexecutive officers, other officers and our directors to further align the company’sinterests of management and our directors with those of our stockholders. The ownership guidelines require stock ownership guidelines:
having a “target dollar value,” which consists of the value of common stock owned by the executive or director, is required to reachand specified members of his or her immediate family, as described below, as a multiple of that executive’s base salary or the target dollar value through ownership of shares of unrestricted common stock and to retain those shares until termination of service;
unvested awards do not countdirector’s annual cash retainer fee, as shares owned, only shares received upon conversion or exercise of awards, or,shown in the case of our directors, awards that vested but for which the director elected to defer conversion, count as shares ownedtable below:
Position | Target Dollar Value (as a multiple of base salary)(1) |
Chief Executive Officer | 6x salary |
Executive Vice Presidents | 3x salary |
Other Executive Officers | 2x salary |
Other Officers | 1x salary |
Directors | 5x annual cash retainer fee |
(1) | Target Dollar Value generally is based on the number of (i) shares of common stock and (ii) shares underlying vested RSUs with respect to which delivery of the shares has been deferred, in each case owned by (a) the executive officer or director, (b) a parent, child or grandchild of the executive officer or director or (c) a trust or other entity established for the benefit of the executive officer or director, or any of such family members if the executive officer or director maintains the power to dispose of such shares. The value is computed on the last day of each quarter, based on the closing price per share of our common stock, as reported by the NYSE. |
Until the target dollar value is as follows*:
| ||
| ||
| ||
|
until the target dollar value has been reached,achieved, an executive officer must retain 50%, and a director must retain 100%, of all “net”net shares received or deferred under any company equity compensation program
“net” sharesof our incentive plans or programs. “Net shares” means all shares remaining after the sale of shares by the executive officer or director or the withholding by us of shares to pay any taxes due with respect to the exercise price (inshares received and, in the case of options), and any taxes due in respect ofoptions, the shares receivedexercise price.
testing for compliance is done on the last day of each fiscal quarter
onceOnce the executive or director holds the target dollar value as of the last day of a testing date,calendar quarter, he or she is deemed to be in compliance with the policyguidelines so long as he or she continues to hold at least the number of shares he or she held as of that testing date
Thedate. If an executive officer is promoted, he or she must again achieve compliance with the guidelines, provide that shares held by a parent, child, or grandchildcommencing with the last day of the executive or director, or by a trust or other entity established for any such family members, will count toward reachingcalendar quarter in which the guideline dollar value so long as the executive or director retains the power to dispose of the shares. The compensation committee believes that the purpose of aligning the interests of directors and executives with those of stockholders through stock ownership is still served when shares are held by immediate family members or trusts or other entities for their benefit. This also removes a disincentive to transfer shares to family trusts in order to facilitate estate planning.promotion occurred.
HEXCEL CORPORATION | 2019 Proxy Statement | 33 |
COMPENSATION DISCUSSION AND ANALYSIS
All of our NEOs arenamed executive officers and directors, other than Ms. Lehman and Mr. Winterlich, who first became executive officers in 2017, and Ms. Suever, who first became a director in 2018, were in compliance with the policy. We monitor compliance with the guidelines by all executive officers and directors on a quarterly basis.as of December 31, 2018.
Our Insider Trading Policy expressly states that our directors, officers and employees are prohibited from engaging in “short sales” or any hedging or monetization transactions, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. In addition, the policy strongly discouragesprohibits pledges of Hexcel securities, and officers and directors must gainpre-clearance to pledge any Hexcel securities they hold. None of our directors or NEOs has pledged any of Hexcel’s stock as security.company securities.
Potential Impact on Compensation from Executive MisconductClawback Policy
In December 2016,
The Hexcel Corporation Clawback Policy is designed to enable the board approved a clawback policyof directors to recover incentive compensation that is intended to create and maintaindeemed received by an employee under specified circumstances that are inconsistent with the maintenance of a culture that emphasizes integrity and accountability and that reinforces apay-for-performanceour pay for performance philosophy. Our clawbackThe policy provides for mandatory recoveryis designed to prevent unjust enrichment based on erroneous determinations of excessperformance or undesirable activities that may cause meaningful harm to the company or its stockholders. The policy applies to incentive-based compensation under awards granted during and after 2017.
Under the Clawback Policy, we may recover incentive-based compensation paid to an executive officer withinwith respect to the last three completed fiscal years ifpreceding a year in which we are required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement. Thisrequirement under the securities laws. The compensation recoverable is the amount in excess of the amount that would have been payable to the executive officer under the restated financial statements. The clawback appliesmay be applied regardless of whether the executive officer was responsible for the inaccurate reportingerror that led to the accounting restatement. The excess compensation recoverable is the amount over what would have been paid to the executive officer if the restated financial statements had originally been delivered.
In addition, the policy provides for recovery, at the board’s discretion, from our current or former employees, including our executive officers, of incentive-based compensation under other specified circumstances, including:
inaccurate reporting of a performance metric on which incentive-based compensation was received erroneously
n | a material error in the calculation of a performance measure on which incentive-based compensation was received by a current or former employee during the three fiscal years completed before the date on which the material error is discovered; |
n | a current employee or former employee engaged in fraudulent or intentional misconduct that causes or might reasonably be expected to cause material reputational, financial or other harm to the company; and |
n | a current or former employee has improperly or grossly negligently failed, including in a supervisory capacity, to identify, escalate, monitor or manage risks that caused or might reasonably be expected to cause material reputational, financial or other harm to the company. |
fraudulent or intentional misconduct that caused or might reasonably be expected to cause material reputational, financial or other harm to the company
malfeasance by the affected employee, such as improper behavior or gross negligence by an employee that resulted in the failure to identify, escalate, monitor or manage risks and that caused or might reasonably be expected to cause material reputational, financial or other harm to the company
These remedies are in addition to any other remedies available to us or imposed by law enforcement agencies, regulators or other authorities.authorities, other than amounts with respect to the same compensation that the Chief Executive Officer or Chief Financial Officer has paid to us under Section 304 of the Sarbanes-Oxley Act of 2002.
In addition to the remedies above, our equity grants to NEOsnamed executive officers also include a clawback provision in the event the NEOnamed executive officer violates certain obligations to the company,us, including confidentiality,non-competition andnon-solicitation of employees. obligations.
34 | HEXCEL CORPORATION | 2019 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS
The Impact of Tax Regulations on our Executive CompensationConsiderations
Deductibility of Compensation—Section 162(m)
Under Section 162(m) of the Internal Revenue Code there is(“Section 162(m)”) generally places a $1.0$1 million annual limitlimitation on the deductibility of compensation paid by a publicly-held company to certain NEOs, subjectof its executive officers. For tax years beginning prior to limited exceptions. One exception applies toJanuary 1, 2018 (and specified pre-existing contractual arrangements as described below), certain compensation thatis exempt from this deduction limitation if it meets all of the requirements of “qualified performance-based“performance-based compensation” under Section 162(m). In setting compensation prior to 2018, we structured our annual incentive program and the applicable regulations thereunder. Compensation that meets all of these requirements will be fully deductible to the company. We consider deductibility as one factor along with others that are relevantstock options in setting compensation. NQOs and PSAs issued under the 2003 ISP and the 2013 ISP area manner intended to qualify for deductibility as performance-based compensation. this exemption.
As noted on page 34, we also grant RSUs without any performance requirement as onepart of the mechanisms we employ to foster retention of key employees; these RSUs do not meetTCJA, the requirements of qualified performance-based compensation under Section 162(m). The MICP provides for the grant of both awards that are intended to qualify as performance-based compensation and awards that are not intended to qualify as performance-based compensation.
We generally structure annual awards under the MICP with the intent that they qualify as performance-based compensationexemption under Section 162(m) so that such awardswas eliminated for tax years commencing after December 31, 2017. The TCJA also expanded the number of executive officers who are fully deductiblesubject to the company; however, changesdeductibility limit. As a result, beginning in tax laws (and interpretations of those laws), as well as other factors beyond the company’s control, also affect2018, all compensation we pay to specified executive officers is subject to the deductibility limit, subject to payments under specified pre-existing contractual arrangements as described below. Nevertheless, as was the case in previous years, our principal consideration in authorizing compensation for our named executive officers is whether we believe such compensation is consistent with our compensation philosophy, described above under “Executive Compensation Overview – Our Compensation Philosophy and Principles.” Accordingly, we believe it is important to retain the flexibility to compensate executives in a manner designed to meet these objectives, even if such compensation is potentially not deductible for tax purposes.
The TCJA provides that its elimination of executive compensation. In addition, the committee may determineperformance-based compensation exemption under Section 162(m) does not apply with respect to compensation under a “written binding contract” that corporate objectives justify the cost of being unable to deduct annualwas in effect on November 2, 2017 and long-term incentive compensation. For these and other reasons, the company willis not necessarily in all circumstances limit executivematerially modified thereafter. We believe that compensation expense we incur with respect to the amount which is permittedexercise of stock options, the vesting of PSAs and, under certain limited circumstances, the vesting of RSUs granted prior to November 2, 2017 will continue to be deductible as an expenseunder applicable regulations. However, due to uncertainties in the interpretation and implementation of the companychanges to Section 162(m) under Section 162(m). The committee will consider various alternatives to preserving the deductibilityTCJA, including the scope of compensation payments and benefits tothe regulatory relief for these pre-existing arrangements, we can offer no assurance regarding the extent reasonably practicableto which, if any, compensation payable in 2018 and to the extent consistentsubsequent years under pre-existing arrangements with the company’s other compensation objectives.covered employees will be deductible.
We were able to deduct substantially all expense associated with the compensation paid to our NEOs in 2016.
HEXCEL CORPORATION | 2019 Proxy Statement | 35 |
Compensation Committee Interlocks and Insider Participation
The following directors were members of the compensation committee during 2016: W. Kim Foster, Thomas A. Gendron, Guy C. Hachey and David L. Pugh. None of these directors has been an employee or executive officer of Hexcel at any time. In addition, during 2016, no Hexcel executive officer served on the board of directors or compensation committee of a company that had an executive officer that served on our board of directors or compensation committee.
Compensation Committee Report |
The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis and discussed it with management.Analysis. Based on its review and discussions with management, the committee recommended to our Boardboard of Directorsdirectors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form10-K for the fiscal year ended December 31, 2016.2018. This report is provided by the following independent directors, who comprise the committee:
Thomas A. Gendron,Chair
W. Kim FosterJeffrey A. Graves
Guy C. Hachey
David L. Pugh
The Members of the Compensation Committee
36 | HEXCEL CORPORATION | 2019 Proxy Statement |
Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1)(2) | Option Awards ($)(2)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | ||||||||||||||||||||||||
Nick L. Stanage; | 2016 | 930,000 | 1,685,870 | 1,011,715 | 1,362,450 | 1,611,762 | 79,796 | 6,681,593 | ||||||||||||||||||||||||
Chairman, CEO and President | 2015 | 885,000 | 1,438,107 | 862,815 | 1,111,774 | 1,298,609 | 122,314 | 5,718,619 | ||||||||||||||||||||||||
2014 | 775,000 | 1,065,616 | 639,588 | 1,067,175 | 1,161,744 | 110,470 | 4,819,593 | |||||||||||||||||||||||||
Wayne C. Pensky; | 2016 | 508,430 | 587,819 | 352,786 | 558,637 | 341,011 | 94,515 | 2,443,198 | ||||||||||||||||||||||||
EVP and CFO | 2015 | 484,219 | 559,831 | 335,897 | 456,861 | 298,985 | 112,543 | 2,248,336 | ||||||||||||||||||||||||
2014 | 465,595 | 509,238 | 305,651 | 480,843 | 352,527 | 108,593 | 2,222,448 | |||||||||||||||||||||||||
Ira J. Krakower | 2016 | 423,288 | 396,806 | 238,131 | 434,082 | 295,762 | 83,999 | 1,872,067 | ||||||||||||||||||||||||
EVP; General Counsel; and Secretary | 2015 | 410,959 | 372,385 | 223,443 | 361,890 | 99,784 | 106,049 | 1,574,510 | ||||||||||||||||||||||||
2014 | 393,262 | 356,424 | 213,904 | 379,065 | 304,217 | 104,683 | 1,751,555 | |||||||||||||||||||||||||
Robert G. Hennemuth | 2016 | 402,332 | 352,037 | 211,250 | 353,650 | 217,349 | 59,911 | 1,596,529 | ||||||||||||||||||||||||
EVP—Human Resources and Communications | 2015 | 387,977 | 339,415 | 203,664 | 292,845 | 206,746 | 76,010 | 1,506,657 | ||||||||||||||||||||||||
2014 | 371,270 | 313,242 | 188,018 | 306,743 | 184,059 | 74,115 | 1,437,447 | |||||||||||||||||||||||||
Thierry Merlot(7) | 2016 | 320,633 | 140,354 | 84,247 | 250,506 | — | 78,449 | 874,189 | ||||||||||||||||||||||||
President-Aerospace, EMEA/AP |
Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1)(2) | Option Awards ($)(2)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | ||||||||||||||||||||||||
Nick L. Stanage | 2018 | 986,637 | 2,034,891 | 1,220,948 | 1,027,878 | 918,365 | 157,843 | 6,346,562 | ||||||||||||||||||||||||
Chairman, CEO | 2017 | 957,900 | 1,855,926 | 1,113,546 | 1,100,723 | 1,725,134 | 150,970 | 6,904,199 | ||||||||||||||||||||||||
and President | 2016 | 930,000 | 1,685,870 | 1,011,715 | 1,362,450 | 1,674,574 | 797,805 | 7,462,414 | ||||||||||||||||||||||||
Patrick J. Winterlich(7) | 2018 | 425,000 | 371,826 | 223,113 | 287,797 | — | 28,209 | 1,335,945 | ||||||||||||||||||||||||
EVP and CFO | 2017 | 341,281 | 112,161 | 67,318 | 252,412 | — | 371,436 | 1,144,608 | ||||||||||||||||||||||||
Gail E. Lehman(8) | 2018 | 424,875 | 358,469 | 215,074 | 265,581 | — | 24,824 | 1,288,823 | ||||||||||||||||||||||||
EVP, General Counsel | 2017 | 412,500 | 347,996 | 208,813 | 284,402 | — | 89,399 | 1,343,110 | ||||||||||||||||||||||||
and Secretary | ||||||||||||||||||||||||||||||||
Robert G. Hennemuth | 2018 | 426,834 | 386,751 | 232,078 | 266,806 | 229,298 | 82,785 | 1,624,552 | ||||||||||||||||||||||||
EVP, Human Resources | 2017 | 414,402 | 375,518 | 225,314 | 285,713 | 278,721 | 81,561 | 1,661,229 | ||||||||||||||||||||||||
and Communications | 2016 | 402,332 | 352,037 | 211,250 | 353,650 | 217,349 | 77,511 | 1,614,129 | ||||||||||||||||||||||||
Thierry Merlot(9) | 2018 | 377,021 | 227,689 | 136,660 | 216,029 | — | 83,039 | 1,040,438 | ||||||||||||||||||||||||
President, Aerospace, | 2017 | 361,920 | 192,203 | 115,350 | 228,735 | — | 80,628 | 978,836 | ||||||||||||||||||||||||
Europe, Middle East, | 2016 | 320,633 | 140,354 | 84,247 | 250,506 | — | 78,449 | 874,189 | ||||||||||||||||||||||||
Africa and Asia Pacific |
Includes the aggregate grant date fair value of RSUs and PSAs granted to the |
2016 Amount included in Stock Awards | 2015 Amount included in Stock Awards | 2014 Amount included in Stock Awards | ||||||||||||||||||||||
Target | Maximum | Target | Maximum | Target | Maximum | |||||||||||||||||||
Nick L. Stanage | 1,685,870 | 3,371,740 | 1,438,107 | 2,876,215 | 1,065,616 | 2,131,232 | ||||||||||||||||||
Wayne C. Pensky | 352,700 | 705,400 | 355,898 | 671,797 | 305,543 | 611,086 | ||||||||||||||||||
Ira J. Krakower | 238,100 | 476,199 | 223,449 | 446,897 | 213,846 | 427,691 | ||||||||||||||||||
Robert G. Hennemuth | 211,224 | 422,449 | 203,667 | 407,333 | 187,954 | 375,907 | ||||||||||||||||||
Thierry Merlot | 84,212 | 168,425 |
2018 Amount Included in Stock Awards | 2017 Amount Included in Stock Awards | 2016 Amount Included in Stock Awards | ||||||||||
Target | Maximum | Target | Maximum | Target | Maximum | |||||||
Nick L. Stanage | 2,034,891 | 4,069,782 | 1,855,926 | 3,711,851 | 1,685,876 | 3,371,753 | ||||||
Patrick J. Winterlich | 223,123 | 446,246 | 67,317 | 134,633 | — | — | ||||||
Gail E. Lehman | 215,081 | 430,163 | 208,818 | 417,635 | — | — | ||||||
Robert G. Hennemuth | 232,051 | 464,102 | 225,331 | 450,662 | 211,219 | 422,439 | ||||||
Thierry Merlot | 136,641 | 273,282 | 115,342 | 230,684 | 84,212 | 168,425 |
(2) | For additional information regarding the assumptions made in calculating these amounts, see Note |
(3) | Includes the aggregate grant date fair value of all NQOs granted to the |
(4) | Reflects amounts earned under the MICP with respect to |
HEXCEL CORPORATION | 2019 Proxy Statement | 37 |
EXECUTIVE COMPENSATION
(5) | For each year, represents the difference between the actuarial present value of the executive’s accumulated benefit under his applicable retirement plan arrangement, as of December 31 of the |
These changes in present value do not directly relate to the final potential payout, and can vary significantly year-over-year based on: (i) changes in salary; (ii) other one-time adjustments to salary; (iii) actual age versus predicted age at retirement; (iv) the discount rate used to determine present value of the benefit; and (v) other relevant factors. A decrease in the discount rate results in an increase in the present value of the accumulated benefit and an increase in the discount rate has the opposite effect. The amounts in this column were calculated assuming retirement at age 65, which is the normal retirement age under the relevant pension plans and arrangements. The interest rate and mortality assumptions used are consistent with those used in the preparation of our financial statements. See Note 7, “Retirement and Other Postretirement Benefit Plans,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, and the pension benefits table under “Pension Benefits in 2018,” on page 42 for a description of the interest rate and mortality assumptions.
(6) | The amounts for our |
Name | Hexcel Contributions to 401(K) Retirement Savings Plan | Hexcel Contributions to Nonqualified Deferred Compensation Plan | Cash in Lieu of 401(K) Contributions on Earnings Exceeding ERISA Limits | Premiums for Life Insurance | Premiums for Long-Term Disability Insurance | Premiums for Accidental Death Insurance | Perquisites Allowance(a) | Hexcel Contributions to 401(k) Retirement Savings Plan ($) | Hexcel Contributions to Non-Qualified Deferred Compensation Plan ($) | Premiums for Life Insurance ($) | Premiums for Long-Term Disability Insurance ($) | Premiums for Accidental Death and Dismemberment Insurance ($) | Perquisites Allowance(a) ($) | |||||||||||||||||||||||||||||||||||||||
Nick L. Stanage | $21,200 | $48,045 | — | $2,979 | $4,251 | $3,330 | — | 21,850 | 128,412 | 2,970 | 4,251 | 360 | — | |||||||||||||||||||||||||||||||||||||||
Wayne C. Pensky | $26,500 | $60,782 | — | $1,980 | $5,013 | $240 | $22,600 | |||||||||||||||||||||||||||||||||||||||||||||
Ira J. Krakower | $26,500 | — | $35,873 | $20,941 | (b) | $564 | $120 | $22,600 | ||||||||||||||||||||||||||||||||||||||||||||
Patrick J. Winterlich | 22,193 | — | 2,515 | 3,261 | 240 | — | ||||||||||||||||||||||||||||||||||||||||||||||
Gail E. Lehman | 22,335 | — | 2,249 | — | 240 | — | ||||||||||||||||||||||||||||||||||||||||||||||
Robert G. Hennemuth | $21,200 | $31,478 | — | $1,980 | $5,013 | $240 | $17,600 | 21,850 | 36,102 | 1,980 | 5,013 | 240 | 17,600 | |||||||||||||||||||||||||||||||||||||||
Thierry Merlot(c) | — | — | — | — | $2,051 | $1,590 | $7,868 | |||||||||||||||||||||||||||||||||||||||||||||
Thierry Merlot(b) | — | — | 3,859 | — | — | 9,412 |
Mr. Hennemuth had a perquisites allowance |
In addition to the amounts in the table, Hexcel contributed |
(7) | Mr. Winterlich became a named executive officer in 2017, following his promotion to Executive Vice President and Chief Financial Officer on September 1, 2017. |
(8) | Ms. Lehman was appointed Executive Vice President, General Counsel and Secretary in January 2017. |
(9) | For Mr. Merlot, the amounts in the |
38 | HEXCEL CORPORATION | 2019 Proxy Statement |
EXECUTIVE COMPENSATION
Grants of Plan-Based Awards in 20162018
Name | Grant Date | Date Board or Compensation Committee took Action to Grant Such Award(3) |
Estimated Future Payouts Under |
Estimated Future Payouts Under | All Other Stock Awards: Number of Shares of Stock or Units (#)(4) | All Other Option Awards: Number of Securities Underlying Options (#)(5) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(6) | ||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||||||||||
Nick L. Stanage | — | — | 465,000 | 930,000 | 1,860,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | 20,209 | 40,419 | 80,838 | — | — | — | 1,685,870 | |||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | — | — | — | — | 64,812 | 41.71 | 1,011,715 | |||||||||||||||||||||||||||||||||||||
Wayne C. Pensky | — | — | 190,661 | 381,323 | 762,645 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | 4,228 | 8,456 | 16,912 | — | — | — | 352,700 | |||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | — | — | — | 5,637 | — | — | 235,119 | |||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | — | — | — | — | 22,600 | 41.71 | 352,786 | |||||||||||||||||||||||||||||||||||||
Ira J. Krakower | — | — | 148,151 | 296,302 | 592,603 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | 2,854 | 5,708 | 11,417 | — | — | — | 238,100 | |||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | — | — | — | 3,805 | — | — | 158,707 | |||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | — | — | — | — | 15,255 | 41.71 | 238,131 | |||||||||||||||||||||||||||||||||||||
Robert G. Hennemuth | — | — | 120,700 | 241,399 | 482,798 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | 2,532 | 5,064 | 10,128 | — | — | — | 211,224 | |||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | — | — | — | 3,376 | — | — | 140,813 | |||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | — | — | — | — | 13,533 | 41.71 | 211,250 | |||||||||||||||||||||||||||||||||||||
Thierry Merlot | — | — | 85,497 | 170,994 | 341,987 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | 1,010 | 2,019 | 4,038 | — | — | — | 84,212 | |||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | — | — | — | 1,346 | — | — | 56,142 | |||||||||||||||||||||||||||||||||||||
01/26/2016 | 01/19/2016 | — | — | — | — | — | — | — | 5,397 | 41.71 | 84,247 |
All Other | Grant | |||||||||||||||||||||||
Stock | All Other | Date | ||||||||||||||||||||||
Awards: | Option | Fair | ||||||||||||||||||||||
Estimated Possible | Estimated Future | Number | Awards: | Exercise | Value of | |||||||||||||||||||
Payouts Under | Payouts Under | of | Number of | or Base | Stock | |||||||||||||||||||
Non-Equity Incentive | Equity Incentive | Shares | Securities | Price of | and | |||||||||||||||||||
Plan Awards(1) | Plan Awards(2) | of Stock | Underlying | Option | Option | |||||||||||||||||||
Grant | Approval | Threshold | Target | Maximum | Threshold | Target | Maximum | or Units | Options | Awards | Awards | |||||||||||||
Name | Date(3) | Date(3) | ($) | ($) | ($) | (#) | (#) | (#) | (#)(4) | (#)(5) | ($/Sh) | ($)(6) | ||||||||||||
Nick L. | — | — | 493,319 | 986,637 | 1,973,274 | — | — | — | — | — | — | — | ||||||||||||
Stanage | 01/29/2018 | 01/23/2018 | — | — | — | 14,929 | 29,859 | 59,718 | — | — | — | 2,034,891 | ||||||||||||
01/29/2018 | 01/23/2018 | — | — | — | — | — | — | — | 50,121 | 68.15 | 1,220,948 | |||||||||||||
Patrick J. | — | — | 138,125 | 276,250 | 552,500 | — | — | — | — | — | — | — | ||||||||||||
Winterlich | 01/29/2018 | 01/23/2018 | — | — | — | 1,637 | 3,274 | 6,548 | — | — | — | 223,123 | ||||||||||||
01/29/2018 | 01/23/2018 | — | — | — | — | — | — | 2,182 | — | — | 148,703 | |||||||||||||
01/29/2018 | 01/23/2018 | — | — | — | — | — | — | — | 9,159 | 68.15 | 223,113 | |||||||||||||
Gail E. | — | — | 127,463 | 254,925 | 509,850 | — | — | — | — | — | — | — | ||||||||||||
Lehman | 01/29/2018 | 01/23/2018 | — | — | — | 1,578 | 3,156 | 6,312 | — | — | — | 215,081 | ||||||||||||
01/29/2018 | 01/23/2018 | — | — | — | — | — | — | 2,104 | — | — | 143,388 | |||||||||||||
01/29/2018 | 01/23/2018 | — | — | — | — | — | — | — | 8,829 | 68.15 | 215,074 | |||||||||||||
Robert G. | — | — | 128,050 | 256,100 | 512,200 | — | — | — | — | — | — | — | ||||||||||||
Hennemuth | 01/29/2018 | 01/23/2018 | — | — | — | 1,702 | 3,405 | 6,810 | — | — | — | 232,051 | ||||||||||||
01/29/2018 | 01/23/2018 | — | — | — | — | — | — | 2,270 | — | — | 154,701 | |||||||||||||
01/29/2018 | 01/23/2018 | — | — | — | — | — | — | — | 9,527 | 68.15 | 232,078 | |||||||||||||
Thierry | — | — | 103,681 | 207,361 | 414,722 | — | — | — | — | — | — | — | ||||||||||||
Merlot | 01/29/2018 | 01/23/2018 | — | — | — | 1,002 | 2,005 | 4,010 | — | — | — | 136,641 | ||||||||||||
01/29/2018 | 01/23/2018 | — | — | — | — | — | — | 1,336 | — | — | 91,048 | |||||||||||||
01/29/2018 | 01/23/2018 | — | — | — | — | — | — | — | 5,610 | 68.15 | 136,660 |
(1) | The amounts shown reflect the |
(2) | Reflects the number of shares of our common stock underlying PSAs granted under our 2013 Incentive Stock Plan (the “2013 ISP”); the |
(3) | For our regular annual equity awards, the compensation committee approved a dollar value of the awards (as a percentage of salary) and the |
(4) | Reflects RSUs granted under the 2013 ISP, which, except for the RSUs granted to Mr. Merlot, will vest and convert into shares at the rate ofone-third on each of the first three anniversaries of the grant date. The RSUs granted to Mr. Merlot will vest and convert at the rate of two-thirds of the underlying shares on the second anniversary of the grant date and the remaining one-third of the underlying shares on the third anniversary of the grant date. The terms of the RSUs are described in more detail on |
(5) | Reflects NQOs granted under the 2013 ISP, which will vest and become exercisable at the rate ofone-third of the underlying shares on each of the first three anniversaries of the grant date. The terms of the NQOs are described in more detail on page |
(6) | Reflects the |
value is equal to the amount that we will expense in our financial statements over the award’s vesting |
Compensation Arrangement with Mr. Stanage
HEXCEL CORPORATION | 2019 Proxy Statement | 39 |
We have an employment arrangement with Mr. Stanage regarding the terms and conditions of his continued employment as President and as Chief Executive Officer, which provides for:EXECUTIVE COMPENSATION
an annual base salary
an annual cash target incentive award of 100% of his base salary
an annual equity award valued at a percentage of his base salary
continued participation in all of our employee benefit plans and arrangements applicable to senior level executives, except our executive perquisites program
The arrangement also provides that we will make payments to Mr. Stanage upon his termination of employment with us under various circumstances under the terms of the Hexcel Corporation Executive Severance Policy (described on pages 52-53), and imposes certain obligations on Mr. Stanage following termination (described on page 53).
Separation and Consulting Agreement with Ira J. Krakower
On September 7, 2016, the company and Mr. Krakower entered into a Separation and Consulting Agreement which sets forth the terms of Mr. Krakower’s departure from the company. The agreement provides that Mr. Krakower continue to be employed by Hexcel and serve as Executive Vice President, General Counsel and Secretary until the earlier of the appointment of a successor or March 31, 2017. Upon the appointment of his successor January 3, 2017, Mr. Krakower became Special Counsel to the CEO for the remainder of his employment. After the cessation of his employment on March 31, 2017, Mr. Krakower will provide services on a consulting basis through December 31, 2017. Those services consist of assistance with the transition of his duties to his successor and general advice and counsel as may be requested by Mr. Stanage.
Until March 31, 2017, Mr. Krakower will receive his current annual base salary, and will be entitled to participate in all Hexcel benefit and compensation plans, including the MICP and profit sharing plans. As consideration for the consulting services to be provided from April 1 through December 31, 2017, Mr. Krakower received an equity award valued at 150% of his base salary, which grant was made during the company’s normal grant cycle in January 2017.
Mr. Krakower is entitled to receive the termination-related compensation and benefits provided for under his Severance Agreement (described on page 54) and the Involuntary Termination Benefit under his SERP (described on pages 49-50).
Description of Plan-Based Awards
All NQOs, RSUs and PSAs granted to the NEOsnamed executive officers in fiscal year 20162018 were granted under the 2013 ISP and are governed by the terms and conditions of the 2013 ISP and the applicable award agreements. See pages 33-3526-29 of this proxy statement for a detailed discussion of NQOs, RSUs and PSAs.
Outstanding Equity Awards at 20162018 FiscalYear-End
The following table provides information on the holdings of outstanding stock options and unvested stock awards held by the NEOsnamed executive officers as of December 31, 2016:2018:
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($/Sh) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) | |||||||||||||||||||||||||||
Nick L. Stanage | 31,084 | 1,598,961 | 74,051 | 3,809,183 | ||||||||||||||||||||||||||||||||
64,812 | 41.71 | 01/26/2026 | ||||||||||||||||||||||||||||||||||
18,860 | 37,718 | 43.96 | 01/27/2025 | |||||||||||||||||||||||||||||||||
23,275 | 11,637 | 43.01 | 01/28/2024 | |||||||||||||||||||||||||||||||||
41,321 | 28.27 | 01/28/2023 | ||||||||||||||||||||||||||||||||||
46,562 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||||
57,068 | 19.02 | 01/31/2021 | ||||||||||||||||||||||||||||||||||
77,174 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||||||||||
Wayne C. Pensky | 19,659 | 1,011,269 | 16,301 | 838,523 | ||||||||||||||||||||||||||||||||
22,600 | 41.71 | 01/26/2026 | ||||||||||||||||||||||||||||||||||
7,343 | 14,683 | 43.96 | 01/27/2025 | |||||||||||||||||||||||||||||||||
11,123 | 5,561 | 43.01 | 01/28/2024 | |||||||||||||||||||||||||||||||||
24,710 | 28.27 | 01/28/2023 | ||||||||||||||||||||||||||||||||||
32,686 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||||
42,163 | 19.02 | 01/31/2021 | ||||||||||||||||||||||||||||||||||
57,842 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||||||||||
72,261 | 7.83 | 01/26/2019 | ||||||||||||||||||||||||||||||||||
Ira J. Krakower | 13,497 | 694,308 | 10,928 | 562,136 | ||||||||||||||||||||||||||||||||
15,255 | 41.71 | 01/26/2026 | ||||||||||||||||||||||||||||||||||
4,885 | 9,767 | 43.96 | 01/27/2025 | |||||||||||||||||||||||||||||||||
7,785 | 3,891 | 43.01 | 01/28/2024 | |||||||||||||||||||||||||||||||||
18,148 | 28.27 | 01/28/2023 | ||||||||||||||||||||||||||||||||||
24,807 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||||
32,932 | 19.02 | 01/31/2021 | ||||||||||||||||||||||||||||||||||
47,042 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||||||||||
58,539 | 7.83 | 01/26/2019 | ||||||||||||||||||||||||||||||||||
15,433 | 21.11 | 01/28/2018 | ||||||||||||||||||||||||||||||||||
25,772 | 18.17 | 01/29/2017 | ||||||||||||||||||||||||||||||||||
Robert G. Hennemuth | 11,969 | 615,665 | 9,820 | 505,141 | ||||||||||||||||||||||||||||||||
13,533 | 41.71 | 01/26/2026 | ||||||||||||||||||||||||||||||||||
4,452 | 8,903 | 43.96 | 01/27/2025 | |||||||||||||||||||||||||||||||||
6,843 | 3,420 | 43.01 | 01/28/2024 | |||||||||||||||||||||||||||||||||
15,913 | 28.27 | 01/28/2023 | ||||||||||||||||||||||||||||||||||
21,631 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||||
Thierry Merlot | 4,915 | 252,821 | 4,015 | 206,532 | ||||||||||||||||||||||||||||||||
5,397 | 41.71 | 01/26/2026 | ||||||||||||||||||||||||||||||||||
1,871 | 3,740 | 43.96 | 01/27/2025 | |||||||||||||||||||||||||||||||||
2,795 | 1,397 | 43.01 | 01/28/2024 | |||||||||||||||||||||||||||||||||
6,336 | 28.27 | 01/28/2023 | ||||||||||||||||||||||||||||||||||
10,067 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||||
12,300 | 19.02 | 01/31/2021 | ||||||||||||||||||||||||||||||||||
16,100 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||||||||||
17,495 | 7.83 | 01/26/2019 |
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Rights That Have Not Vested (#)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) | ||||||||||||||||||||||||||
Nick L. | 01/31/2011 | 57,068 | — | 19.02 | 01/31/2021 | |||||||||||||||||||||||||||||||
Stanage | 01/30/2012 | 46,562 | — | 25.03 | 01/30/2022 | |||||||||||||||||||||||||||||||
01/28/2013 | 41,321 | — | 28.27 | 01/28/2023 | ||||||||||||||||||||||||||||||||
01/28/2014 | 34,912 | — | 43.01 | 01/28/2024 | ||||||||||||||||||||||||||||||||
01/27/2015 | 56,578 | — | 43.96 | 01/27/2025 | ||||||||||||||||||||||||||||||||
01/26/2016 | 43,209 | 21,603 | 41.71 | 01/26/2026 | 44,960 | 2,578,006 | — | — | ||||||||||||||||||||||||||||
01/30/2017 | 20,402 | 40,802 | 50.50 | 01/30/2027 | — | — | 37,302 | 2,138,897 | ||||||||||||||||||||||||||||
01/29/2018 | — | 50,121 | 68.15 | 01/29/2028 | — | — | 30,050 | 1,723,067 | ||||||||||||||||||||||||||||
Patrick J. | 01/28/2014 | 2,345 | — | 43.01 | 01/28/2024 | |||||||||||||||||||||||||||||||
Winterlich | 01/27/2015 | 3,348 | — | 43.96 | 01/27/2025 | |||||||||||||||||||||||||||||||
01/26/2016 | 2,276 | 1,137 | 41.71 | 01/26/2026 | 5,132 | 294,269 | — | — | ||||||||||||||||||||||||||||
01/30/2017 | 1,234 | 2,466 | 50.50 | 01/30/2027 | 599 | 34,347 | 1,352 | 77,524 | ||||||||||||||||||||||||||||
01/29/2018 | — | 9,159 | 68.15 | 01/29/2028 | 2,195 | 125,861 | 3,294 | 188,878 | ||||||||||||||||||||||||||||
Gail E. | 01/30/2017 | 3,826 | 7,651 | 50.50 | 01/30/2027 | 1,864 | 106,882 | 4,197 | 240,656 | |||||||||||||||||||||||||||
Lehman | 01/29/2018 | — | 8,829 | 68.15 | 01/29/2028 | 2,117 | 121,389 | 3,176 | 182,112 | |||||||||||||||||||||||||||
Robert G. | 01/30/2012 | 21,631 | — | 25.03 | 01/30/2022 | |||||||||||||||||||||||||||||||
Hennemuth | 01/28/2013 | 15,913 | — | 28.27 | 01/28/2023 | |||||||||||||||||||||||||||||||
01/28/2014 | 10,263 | — | 43.01 | 01/28/2024 | ||||||||||||||||||||||||||||||||
01/27/2015 | 13,355 | — | 43.96 | 01/27/2025 | ||||||||||||||||||||||||||||||||
01/26/2016 | 9,023 | 4,510 | 41.71 | 01/26/2026 | 6,787 | 389,167 | — | — | ||||||||||||||||||||||||||||
01/30/2017 | 4,129 | 8,255 | 50.50 | 01/30/2027 | 2,011 | 115,311 | 4,528 | 259,636 | ||||||||||||||||||||||||||||
01/29/2018 | — | 9,527 | 68.15 | 01/29/2028 | 2,284 | 130,965 | 3,426 | 196,447 | ||||||||||||||||||||||||||||
Thierry Merlot | 02/01/2010 | 16,100 | — | 10.90 | 02/01/2020 | |||||||||||||||||||||||||||||||
01/31/2011 | 8,810 | — | 19.02 | 01/31/2021 | ||||||||||||||||||||||||||||||||
01/30/2012 | 10,067 | — | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||
01/28/2014 | 4,192 | — | 43.01 | 01/28/2024 | ||||||||||||||||||||||||||||||||
01/27/2015 | 5,611 | — | 43.96 | 01/27/2025 | ||||||||||||||||||||||||||||||||
01/26/2016 | 3,599 | 1,798 | 41.71 | 01/26/2026 | 2,245 | 128,728 | — | — | ||||||||||||||||||||||||||||
01/30/2017 | 2,114 | 4,226 | 50.50 | 01/30/2027 | 1,544 | 88,533 | 2,318 | 132,914 | ||||||||||||||||||||||||||||
01/29/2018 | — | 5,610 | 68.15 | 01/29/2028 | 1,344 | 77,065 | 2,017 | 115,655 |
(1) | All options listed in this table vest |
RSUs under the ISP(a) | Earned PSAs(b) | |||||||
Nick L. Stanage | — | 31,084 | ||||||
Wayne C. Pensky | 10,748 | 8,911 | ||||||
Ira J. Krakower | 7,260 | 6,237 | ||||||
Robert G. Hennemuth | 6,487 | 5,482 | ||||||
Thierry Merlot | 2,676 | 2,239 |
40 | HEXCEL CORPORATION | 2019 Proxy Statement |
EXECUTIVE COMPENSATION
(2) | This column includes unvested RSUs granted on January 26, 2016, January 30, 2017 and January 29, 2018 under the 2013 ISP, and the number of shares of Hexcel common stock underlying PSAs |
Earned | ||||
Shares | ||||
Nick L. Stanage | 44,960 | |||
Patrick J. Winterlich | 1,419 | |||
Gail E. Lehman | — | |||
Robert G. Hennemuth | 5,632 | |||
Thierry Merlot | 2,245 |
The RSUs vest and convert into shares of Hexcel common stock at the rate of one-third per year on each of the first three anniversaries of the grant date, except for grants made to Mr. Merlot, which vest and convert into shares as to two-thirds of the underlying shares on the second anniversary of the grant date and the remaining one-third on the third anniversary of the grant date. In addition, the amounts shown in the table include dividend equivalents provided with respect to the RSUs and PSAs. Dividend equivalents vest at the same time and in the same proportion as the RSUs or PSAs to which the dividend equivalents relate.
(3) | Market values were computed using a price of |
(4) | This column reflects the shares that each |
Option Exercises and Stock Vested in 20162018
Option Awards | Stock Awards(2) | |||||||||||||||||||||||||||||||
Number of | Value | Number of | Value | |||||||||||||||||||||||||||||
Shares | Realized | Shares | Realized | |||||||||||||||||||||||||||||
Acquired | on | Acquired | on | |||||||||||||||||||||||||||||
Option Awards | Stock Awards(1) | on Exercise | Exercise(1) | on Vesting | Vesting | |||||||||||||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | (#) | ($) | (#) | ($)(3) | ||||||||||||||||||||||||
Nick L. Stanage | — | — | 40,744 | $ | 1,699,432 | 52,174 | 2,752,939 | 38,324 | 2,491,060 | |||||||||||||||||||||||
Wayne C. Pensky | — | — | 20,140 | $ | 832,990 | |||||||||||||||||||||||||||
Ira J. Krakower | — | — | 18,618 | $ | 766,859 | |||||||||||||||||||||||||||
Patrick J. Winterlich | — | — | 5,604 | 272,031 | ||||||||||||||||||||||||||||
Gail E. Lehman | — | — | 925 | 62,484 | ||||||||||||||||||||||||||||
Robert G. Hennemuth | 25,883 | $ | 700,766 | 12,858 | $ | 531,918 | — | — | 8,623 | 568,801 | ||||||||||||||||||||||
Thierry Merlot | 8,307 | $ | 192,972 | 4,947 | $ | 217,543 | 15,321 | 764,142 | 3,658 | 241,362 |
(1) | The value realized is equal to the difference between the closing price per share of our common stock, as reported by the NYSE on the date of exercise, and the exercise price, multiplied by the number of shares underlying the options. |
(2) | Reflects RSUs and PSAs that vested during |
(3) | The value realized is equal to the closing price per share of our common stock, as reported by the NYSE on | |
HEXCEL CORPORATION | 2019 Proxy Statement | 41 |
EXECUTIVE COMPENSATION
Pension Benefits in Fiscal Year 20162018
Our NEOsMessrs. Stanage and Hennemuth participate in the following pension plans and arrangements:
Supplemental Executive Retirement AgreementsAgreement with Messrs.Mr. Stanage and Krakower
We have entered into a supplemental executive retirement agreements (each aagreement (the “SERP”) with Messrs. Stanage and Krakower. EachMr. Stanage. The SERP provides for a retirement benefit intended to supplement the executive’sMr. Stanage’s retirement income from our 401(k) planPlan and NonqualifiedNon-Qualified Deferred Compensation Plan (described onpages 36-37) page 31). The material features of the SERPs are as follows:
The monthly normal retirement benefit is equal to the product of the executive’s final average pay, benefit percentage and vesting percentage, offset by any vested contributions made by us under our 401(k) plan and, in the case of Mr. Krakower, any vested contributions made by us under our supplemental 401(k) plan. Mr. Krakower’s benefit is also offset by his accrued benefit under our former qualified pension plan.
Final average pay equals the executive’s average monthly compensation for the highest paid 36 months out of his final 60 months of employment, and includes salary and cash incentive award, but not equity compensation. The cash incentive award is deemed to be earned ratably over the period in which it was earned.
The SERP is unvested forincludes the first five years of service (subject to acceleration in certain circumstances as described below), and becomes fully vested at the end of the fifth year of service. The SERP is fully vested for both Mr. Stanage and Mr. Krakower. The SERP provides for certain elections to be made as to the form of payment.following provisions:
The benefits percentages are as follows:
Upon Mr. |
“Final Average Pay” generally equals Mr. Stanage’s average monthly compensation for the highest paid 36 months out of his final 60 months of employment, and includes salary and amounts earned under all management incentive or other bonus plans in which he participates. Any incentive pay or other bonus is deemed to be earned ratably over the period for which it was earned. |
| The “Benefit Percentage” is7/30 of 1% for each month of service, but |
Upon retirement after reaching age 65, the executive will receive either a lifetime payment stream of the monthly normal retirement benefit starting the month after employment terminates and ending on death, which is guaranteed to be at least 120 monthly payments, or a lump sum that is actuarially equivalent to this lifetime payment stream.
n | Contributions made by us for Mr. Stanage’s account under our 401(k) Plan are expressed as a monthly amount in the form of an actuarially equivalent 50% joint and survivor annuity with 120 months of guaranteed payments starting at the date Mr. Stanage attains age 65, and assuming that our contributions earn interest at the rate 6% from the date of the contribution until the date it is actually paid to Mr. Stanage. |
If the executive’s employment terminates prior to age 65 (early retirement), he will receive a lump sum that is actuarially equivalent to a lifetime payment stream of the monthly normal retirement benefit, reduced by 3% for each year by which the date of the first payment precedes age 65, or the lifetime payment stream so reduced. The lump sum is based on an assumed payment stream starting the month after his employment terminates (but no earlier than the month he reaches age 55), and ends on death, but is guaranteed to be at least 120 monthly payments; any payments after death are made to a surviving beneficiary or to the executive’s estate. This does not apply to Mr. Krakower, as he has already attained the age of 65.
n | If Mr. Stanage’s employment terminates prior to age 65 (early retirement), he will receive a lump sum equal to the actuarial present value of the “Early Retirement Benefit,” subject to the Survivor Benefit Adjustment. The SERP generally defines the “Early Retirement Benefit” as a monthly benefit starting on the first day of the month after the month in which his employment terminates and ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments (with any such payments after his death made to his beneficiary or his estate), in an amount equal to the product of his Final Average Pay and the Benefit Percentage less any contributions made by us for his account under our 401(k) Plan, and reduced by ¼% per payment for each full calendar month by which the commencement of the Early Retirement Benefit precedes Mr. Stanage’s attainment of age 65. |
Should the executive die before receiving any benefits under the SERP, the executive’s designated beneficiary will receive a lump sum that is actuarially equivalent to the 50% survivor annuity the
n | Pursuant to his election, if Mr. Stanage dies before receiving any benefits under the SERP, his designated beneficiary will receive a lump sum equal to the lump sum Mr. Stanage would have received under the SERP had he terminated his employment on the day preceding his death (the “Survivor Benefit”). Mr. Stanage has several alternative Survivor Benefit elections under the SERP, subject to provisions addressing the timing and effectiveness of an election and, except in the case of the default election described below, the Survivor Benefit Adjustment. In lieu of Mr. Stanage’s current election, Mr. Stanage may elect for his designated beneficiary to receive any of the following, which will take effect 12 months after the date on which it is made: |
n | A lump sum that is the actuarial equivalent to the “Pre-Retirement Survivor Benefit” defined as a monthly benefit, starting on the first day of the month following the month in which he dies and ending with the month in which his designated beneficiary dies, that is equal to 50% of the monthly benefit Mr. Stanage would have received had he terminated employment on the |
42 | HEXCEL CORPORATION | 2019 Proxy Statement |
EXECUTIVE COMPENSATION
n | A lump sum |
n | Upon certain other types of termination, or permitted elections, the amount and form of benefit are different: |
n | Termination for |
n | Termination without cause, or by Mr. Stanage for good reason (i) within two years after a change in control (as defined in the SERP), (ii) during the period of a potential change in control, or (iii) at the request of a person who takes action to |
n | Termination without cause (other than in connection with the events described in (i), (ii) and (iii) of the preceding paragraph) or by Mr. Stanage for good reason – a lump sum payment computed in the same manner as the “Early Retirement Benefit,” including the Survivor Benefit Adjustment, except that 12 months of service (or, if less, the number of months preceding Mr. Stanage’s 65thbirthday) are added for purposes of computing the Benefit Percentage. |
n | Termination due to disability – a lump sum payment computed in the same manner as the “Early Retirement Benefit,” including the Survivor Benefit Adjustment, but without any actuarial or other reduction to reflect commencement of payment before Mr. Stanage reaches age 65. |
The enhanced benefits that would be payable if the termination events (other than termination for cause) occurred on December 31, 2018 are quantified in the table on page 51.
The SERP generally provides to Mr. Stanage the ability to irrevocably elect to receive, in lieu of a lump sum payment with regard to a benefit described above, a monthly payment of such benefit, which will take effect 12 months after the date on which such election is made. If he makes such an election, except with respect to the Survivor Benefit, the monthly benefit will start on the first of the month after the fifth anniversary of the date on which his employment terminates, and the amount of the monthly benefit will be actuarially adjusted to take into account that the first payment of the applicable benefit will not take place until the fifth anniversary of the date on which his employment terminates.
Retirement Agreement with Mr. Hennemuth
We have entered into an Executive Deferred Compensation and Consulting Agreement (the “EDCA”) with Mr. Hennemuth. The EDCA is a non-qualified, unfunded supplemental pension plan that, in accordance with certain irrevocable elections made by Mr. Hennemuth, provides for a lump sum payment consisting of two components (i) a consulting and retirement income payment component and (ii) an insurance benefits component.
Consulting and Retirement Income Payment
n | The consulting and retirement income component is based on the amount of Mr. Hennemuth’s accrued benefit under the EDCA, which is equal to 1.5% of Mr. Hennemuth’s aggregate salary and incentive cash bonuses earned while employed by us from March 20, 2006 until termination of his employment. |
n | If Mr. Hennemuth retires or otherwise ceases to be employed by us on or after his 65thbirthday, he will be entitled to receive, as part of his lump sum payment, the actuarial present value of monthly payments equal to1/12 of his accrued benefit, commencing in the calendar month following his retirement and continuing until the later of completion of the 120thmonthly payment or the payment for the month in which he dies. |
HEXCEL CORPORATION | 2019 Proxy Statement | 43 |
EXECUTIVE COMPENSATION
n | If Mr. Hennemuth’s employment terminates prior to age 65, he will be entitled to receive, as part of his lump sum payment, an early retirement benefit equal to the actuarial present value of monthly payments (taking into account a reduction to reflect commencement of such payments prior to his 65thbirthday) equal to1/12 of his accrued benefit, commencing in the calendar month following his termination of employment and continuing until the later of completion of the 120thmonthly payment or the payment for the month in which he dies. |
n | If Mr. Hennemuth dies prior to his 65thbirthday and prior to receiving his lump sum payment under the EDCA, a lump sum payment will be payable to his beneficiary in an amount equivalent to the actuarial present value of a monthly pension for the balance of the beneficiary’s life that is based on the actuarial equivalent of the early retirement benefit that Mr. Hennemuth would |
n | Upon a change in control, Mr. Hennemuth will be entitled to receive, as part of his lump sum payment, the |
Insurance Benefits
n | The insurance benefits include (i) life insurance benefits and (ii) medical and dental insurance benefits. The insurance benefits are payable in a lump sum equal to the actuarial |
n | Life insurance benefit |
n | For the period following termination of Mr. Hennemuth’s employment with Hexcel and prior to his 65thbirthday, life insurance in an amount equal to the lesser of (i) two times the present value of Mr. Hennemuth’s accrued benefit and (ii) the amount of life insurance on Mr. Hennemuth in effect at the |
Upon certain other types of termination, or permitted elections, the amount and form of benefit are different.
Termination for cause—no benefits are payable
Termination without cause, or by the executive for good reason
12 months of service are added for purposes of computing the benefits percentage
Upon termination without cause, or by the executive for good reason, within two years after a change in control or during a period which qualifies as a potential change in control (as defined in the SERPs)
For Mr. Stanage, 24 months are added for purposes of computing the benefits percentage
For Mr. Krakower, 36 months of service are added for purposes of computing the benefits percentage
Upon termination due to disability, the lump sum is calculated without reduction even if the assumed payment stream would start prior to age 65.
These enhanced benefits payable upon termination are quantified in the table on page .
Retirement Agreements with Messrs. Pensky and Hennemuth
We have entered into Executive Deferred Compensation and Consulting Agreements (each an “EDCA”) with Mr. Pensky and Mr. Hennemuth. The material terms of the EDCAs are as follows:
n | For the period from Mr. Hennemuth’s 65thbut only until his 75thbirthday, the lesser of (i) the present value of Mr. Hennemuth’s accrued benefit and (ii) the amount of life insurance on Mr. Hennemuth in effect at the time of his retirement or other termination. |
|
The normal monthly retirement benefit is payable startingNotwithstanding the month after employment terminates on or after age 65 and ending on death, but is guaranteed to be at least 120 monthly payments; any payments after death are made to a surviving beneficiary or the executive’s estate.
If the executive’s employment terminates prior to age 65, then
the payments will be actuarially reduced to reflect commencement prior to age 65
the executive’s monthly retirement benefit will start the calendar month after he terminates employment and will end on death, but is guaranteed to be at least 120 monthly payments; any payments after death are made to a surviving beneficiary or the executive’s estate.
If the executive dies prior to commencement of payments to him, a benefit is payable to his beneficiary for the duration of the beneficiary’s life, and is based on the actuarial equivalent of the early retirement benefit described above, as if the executive had retired immediately prior to his death.
Upon a change in control, the executive’s benefits become payable.
Uponforegoing payment provisions, upon termination for cause, no benefits are payable.
Each executive has agreed to consult with us at our request for up to ten days a year for a period of ten yearsThe EDCA contains the following his termination of employment with us.additional provisions:
Each executive has agreed not to solicit our employees and not to engage in any activity competitive with our business for ten years after termination of his employment with us, unless he can show that such actions were taken without the use of confidential information regarding Hexcel.
n | Mr. Hennemuth is required to consult with us at our request for up to ten days a year for a period of ten years following his termination of employment. |
The executive is entitled to an additional amount based on the value of our providing medical, dental and life insurance from termination of employment to age 75:
n | Mr. Hennemuth has agreed in the EDCA not to solicit our employees and not to engage in any activity competitive with our business for ten years after termination of his employment with us (or, if earlier, at such time as he no longer receives any benefits under the EDCA), unless he can show that such actions were taken without the use of confidential information regarding Hexcel. |
the value of the medical and dental insurance is based on the group insurance provided by us to our employees at the time of termination of the executive’s employment
the amount gets added to the value of the lump sum or increases the annuity, depending on the form of payment chosen by the executive.
Messrs. Pensky and Hennemuth have elected to receive their EDCA benefit in the form of an actuarially equivalent lump sum.
Pension Benefits Table
The table below shows the present value, as of December 31, 2018, of accumulated benefits payable to eachUS-based NEOMessrs. Stanage and Hennemuth (the only U.S. based named executive officers covered by defined benefit retirement arrangements) upon their retirement, as of December 31, 2016, includingwell as the number of years of service credited to eachUS-based NEO, under each pension andtheir respective retirement plan listed below, determined using interest rate and mortality rate assumptions consistent with those used in our financial statements. The table also shows payments made to theUS-based NEOs under the plans indicated during 2016.arrangements. Mr. Merlot is eligible to receive a pension whichthat is funded by our contributions from the company and by Mr. Merlot, the value of which iswill be determined byin accordance with French regulationregulations at the time of retirement.
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($)(1) | Payments During Last Fiscal Year ($) | ||||||||||
Nick L. Stanage | Supplemental Executive Retirement Agreement | 7.17 | 5,777,705 | 0 | ||||||||||
Wayne C. Pensky | Executive Deferred Compensation Agreement | 23.42 | 2,983,724 | 0 | ||||||||||
Ira J. Krakower | Supplemental Executive Retirement Agreement | 20.33 | 4,932,513 | 0 | ||||||||||
Robert G. Hennemuth | Executive Deferred Compensation Agreement | 10.75 | 1,834,808 | 0 |
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EXECUTIVE COMPENSATION
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($)(1) | Payments During Last Fiscal Year ($) | ||||||||||
Nick L. Stanage | Supplemental Executive Retirement Agreement | 9.17 | 8,387,961 | 0 | ||||||||||
Robert G. Hennemuth | Executive Deferred Compensation Agreement | 12.75 | 2,342,827 | 0 |
(1) | The amounts in this column were calculated assuming retirement at age 65, |
normal retirement age under the relevant | |
See Note 7, “Retirement and Other Postretirement Benefit Plans” to the consolidated financial statements | |
These amounts represent the amounts required to be disclosed by SEC rules, and assume that each currently active executive will retire at the normal retirement age under the plan, which is age 65, and reflect the following discount rates used to determine the present value of the lump sum payable at age 65: Mr. Stanage 3.40% and Mr. Hennemuth 4.00%. These rates are consistent with those used for purposes of pension calculations in our financial statements. See footnote 5 to the Summary Compensation Table on page 37 for a description of factors affecting the difference between the actuarial present value of the executive’s accumulated benefit under his SERP or EDCA, as applicable, as of December 31 of the current year and December 31 of the prior year. |
These
Non-Qualified Deferred Compensation in 2018
Under the NDCP, eligible U.S. employees, including our U.S. named executive officers, may defer amounts representof their cash compensation in excess of IRS limits applicable to our 401(k) Plan, referred to below as “excess compensation.” We match 50% of a participant’s contributions to the amounts requiredNDCP, up to be disclosed by SEC rules,6% of the participant’s excess compensation. We also provide the same fixed and assume that each currently active executive will retire at the normal retirement age under the plan, which is age 65 (exceptprofit-sharing contributions with respect to Mr. Krakower, who was over age 65such excess contributions on the same basis as provided under our 401(k) Plan. See “Compensation Discussion and Analysis—Ongoing and Post-Employment Arrangements—Hexcel Corporation 401(k) Retirement Savings Plan” for additional information. All participant and Hexcel contributions are fully vested at December 31, 2016), and reflectall times.
Amounts credited to a participant’s account may be invested in a number of notional funds based upon the following discount rates used to determinefunds available under our 401(k) Plan, other than the present value of the lump sum payable at age 65: Mr. Stanage, 3.10%, Messrs. Pensky and Hennemuth, 3.40%. For Mr. Krakower, 3.60% is the assumed discount rate in determining the present value of his elected annuity form of payment. These rates are consistent with those used for purposes of pension calculations in our financial statements. See footnote (5) to the Summary Compensation Table on page 44 for a description of how the difference between the actuarial present value of the executive’s accumulated benefit under his SERP or EDCA, as applicable, as of December 31 of the current year and December 31 of the prior year is calculated.Hexcel stock fund.
Nonqualified Deferred Compensation in Fiscal Year 2016
All information in the table below is with respect to our NDCP, as described on pages 36-37. Messrs. Stanage Pensky and Hennemuth participated in the NDCP in 2016.2018. Neither Ms. Lehman nor Mr. Krakower did not participateWinterlich participated in the NDCP in 2016, and instead received a taxable cash payment equal to the profit sharing contributions and the 2% fixed company contribution he would have received if he participated, but no company match.2018. Mr. Merlot is not eligible to participate in the NDCP because he is not aUS-based U.S. employee.
Name of Plan | Executive Contributions in Last FY($) | Registrant Contributions in Last FY($)(1) | Aggregate Earnings in Last FY($)(2) | Aggregate Balance at Last FYE($)(3) | ||||||||||||||||||||||||||||||||
Name | Executive Contributions in Last Fiscal Year($) | Company Contributions in Last Fiscal Year($)(1) | Aggregate Earnings in Last Fiscal Year($)(2) | Aggregate Balance at Last Fiscal Year-End($)(3) | ||||||||||||||||||||||||||||||||
Nick L. Stanage | NDCP | 84,226 | 48,045 | 14,632 | 648,000 | 61,096 | 128,412 | 42,014 | 1,061,518 | |||||||||||||||||||||||||||
Wayne C. Pensky | NDCP | 67,512 | 60,782 | 24,565 | 1,034,099 | |||||||||||||||||||||||||||||||
Ira J. Krakower | NDCP | — | — | — | — | |||||||||||||||||||||||||||||||
Patrick J. Winterlich | — | — | — | — | ||||||||||||||||||||||||||||||||
Gail E. Lehman | — | — | — | — | ||||||||||||||||||||||||||||||||
Robert G. Hennemuth | NDCP | 44,590 | 31,478 | 9,743 | 353,975 | 26,431 | 36,102 | 7,981 | 504,256 |
(1) |
(2) | The aggregate annual earnings in |
(3) | For each named executive officer, the amount in this column includes aggregate contributions, if any, by both the |
Potential Payments uponUpon Termination or Change in Control
In this section, we describe payments and benefits that would be provided to our named executive officers upon several events of termination, including termination in connection with a change in control, assuming the termination event occurred on December 31, 2018. The information in this section does not include information related to:
n | distributions under the NDCP. See “Non-Qualified Deferred Compensation in 2018.” |
n | RSUs, PSAs and shares underlying stock options that vested prior to the termination event. |
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EXECUTIVE COMPENSATION
n | short-term incentive payments that would not be increased due to the termination event. |
n | distributions to Mr. Stanage under the SERP other than incremental payments payable to Mr. Stanage that are addressed below. See “Pension Benefits in 2018—Supplemental Executive Retirement Agreement with Mr. Stanage.” |
n | distributions to Mr. Hennemuth under the EDCA. See “Pension Benefits in 2018—Retirement Agreement with Mr. Hennemuth.” |
n | other payments and benefits provided on a non-discriminatory basis to salaried employees generally upon termination of employment, including under our 401(k) Plan. |
We have severance agreements with all of our U.S. named executive officers other than Mr. Stanage, whose severance terms are governed by our Executive Severance Policy, coupled with certain terms set forth in his offer of employment letter. We refer to all of the documents collectively as the “Severance Arrangements.” The Severance Arrangements are described below.
The Severance Arrangements generally provide payments and other benefits to a named executive officer if we terminate his or her employment for any reason other than disability or “cause” (as defined in the Severance Arrangement related to the named executive officer) or if he or she terminates employment for “good reason” (also as defined in such Severance Arrangement). In circumstances related to a “change in control” or a “potential change in control” (each as defined in such Severance Arrangement) the payments are enhanced. With respect to the named executive officers, such payments and other benefits generally include a lump sum payment equal to the sum of, or a multiple of the sum of annual base salary and average bonus under the MICP, as well as continued participation in all medical, dental, life insurance and other welfare and perquisite plans and programs in which the executive was participating on the date of termination (“Continued Participation Benefits”) for a specified period of time. These payments are further described below.
Executive Severance Policy
The compensation committee maintains an Executive Severance Policy that applies to any executive employee of the company who has received an offer letter of employment from the company that expressly extends the provisions of the policy to such executive.
Currently, Mr. Stanage is the only named executive officer subject to the policy.TheAs applied to Mr. Stanage, the policy provides that, among other things:
upon termination of the covered executive’s employment for any reason the executive shall receive certain accrued and vested payments
n | upon termination due to Mr. Stanage’s death, his legal representative will receive a pro rata portion of Mr. Stanage’s annual bonus, based on the portion of the year that elapsed prior to his death (the “pro-rata bonus”). | |
n | upon termination due to Mr. Stanage’s disability, he will receive the pro-rata bonus and disability benefits in accordance with the terms of the long-term disability program then in effect for senior executives of the company. | |
n | upon termination of Mr. Stanage by the company other than for disability or cause, or upon his resignation for good reason, other than in relation to a change in control, he will receive | |
n | the pro-rata bonus; | |
n | a cash lump sum equal to one and one-half times the sum of his annual base salary and one and one-half times the average of the last three annual bonus amounts awarded to him for the last three plan years completed prior to the termination date; and | |
n | Continued Participation Benefits for one and one-half years following the termination date. | |
n | upon termination of Mr. Stanage by the company other than for disability or cause, or upon Mr. Stanage’s termination for good reason, in each case during a “potential change in control” (as defined in the policy) or within two years after a change in control, he will receive two and one-half times the lump sum payment described above and the Continued Participation Benefits for two and one-half years. He also will receive these benefits if, during a potential change in control, we terminate Mr. Stanage at the request of a person who takes any action designed to cause a change in control. |
46 | HEXCEL CORPORATION | 2019 Proxy Statement |
upon termination due to the executive’s death, the executive’s legal representative shall receive a pro rata portion of the executive’s annual bonus (the“pro-rata bonus”)EXECUTIVE COMPENSATION
upon termination due to the executive’s disability, the executive shall receive thepro-rata bonus and certain disability benefits
upon termination by the company other than for disability or cause or a resignation by the executive for good reason, the executive shall receive
thepro-rata bonus
a cash lump sum equal to the sum of the executive’s annual base salary and the average of the last three annual bonus amounts awarded to the executive for the last three plan years completed prior to the termination date, multiplied by a multiple specified in the executive’s offer letter
continuation of certain medical and other benefits for the period following the termination date that is specified in the executive’s offer letter
The compensation committee may amend or terminate the policy in its discretion, but no amendment or termination shallcan adversely affect a covered executive’s vested rights and no amendment or termination can become effective as to an executive earlier than the later of one year after written notice is delivered to such executive or two years after the occurrence of a change in control.
Severance Agreements and Arrangements
Under his employment arrangement, upon his termination of employment Mr. Stanage will be entitled to receive severance pursuant to the Executive Severance Policy. The multiples applicable for determining Mr. Stanage’s severance payments and period of post-employment benefits continuation under the policy are:
1.5X in the case of all qualifying terminations other than a change in control or
2.5X in the case of a qualifying termination during a limited period prior to, or within two years following, a change in control
The Executive Severance Policy does not provide for a tax gross-up for with respect to excise taxes incurred under Section 280G and Section 4999 of the Code. See “Severance and ChangeInternal Revenue Code in Control Arrangements—ModifiedGross-Up” on page 39.connection with a change in control.
Mr. Stanage has agreed that, in consideration for these payments, he will not compete with us in any capacity for a period of eighteen18 months following the termination of his employment. This includes, for example, any situation in which Mr. Stanage is an employee of or consultant to, or owner of a business. If Mr. Stanage’s termination is in connection with a change in control for which Mr. Stanage receives enhanced severance payments, the period is extended to thirty30 months. However, histhis restriction would not apply if Mr. Stanage’s duties and responsibilities with a company that competes with us do not relate to the business segment of that company that competes with us. Mr. Stanage also agreed to customary terms regarding our ownership of, and the protection and confidentiality of, our trade secrets, proprietary information and processes, technologies, designs and inventions.
Severance Agreements
We have entered into executive severance agreements with each of Messrs. Pensky, KrakowerWinterlich and Hennemuth and Ms. Lehman that provide for us to make certain payments to these NEOsthe named executive officer upon termination of employment under certainspecified circumstances. In particular:
if we terminate the executive for any reason other than for disability or cause, or if the executive terminates his employment for good reason, the executive will receive
n | if we terminate the executive for any reason other than for disability or cause, or if the executive terminates his or her employment for good reason, other than in relation to a change in control, the executive will receive: | |
n | a lump sum payment equal to the sum of the executive’s then current base salary and average MICP award over the prior three years; | |
n | Continued Participation Benefits for one year; and | |
n | the executive may receive an MICP award prorated for the portion of the year during which the executive was employed prior to termination, if such award is payable under the terms of the MICP. | |
n | in the event that we terminate the executive for any reason other than for disability or cause, or if the executive terminates his or her employment for good reason, in each case during a period of a “potential change in control” (as defined in the executive severance agreement) or within two years after a change in control, or if, during a potential change in control, we terminate the executive at the request of a person who takes any action designed to cause a change in control, the executive will receive the same payments and benefits as described above except that: | |
n | for Mr. Hennemuth, the lump sum payment will be equal to three times the sum described above and for Mr. Winterlich and Ms. Lehman, the lump sum payment will be equal to two times the sum described above; | |
n | for Mr. Hennemuth, the period of Continued Participation Benefits will be three years instead of one, and for Mr. Winterlich and Ms. Lehman, the period of Continued Participation Benefits will be two years instead of one; and | |
n | Mr. Hennemuth also will be entitled to receive a gross-up payment for any excise tax incurred under Section 280G and Section 4999 of the Internal Revenue Code, but only if the total “parachute payments” exceed his untaxed safe harbor amount by 10% or more. We have agreed to reimburse Mr. Hennemuth for the excise tax as well as any income tax and excise tax payable by Mr. Hennemuth as a result of any reimbursements for the excise tax. | |
n | in the event of termination due to death or disability, the executive will receive an MICP award prorated for the portion of the year he or she was employed. |
a lump sum payment equal to the sum of his then current base salary and his average MICP award over the prior three years
participation for one year after termination in all medical, dental, life insurance and other welfare and perquisite plans and programs in which the executive was participating on the date of termination
in addition, the executive may receive an MICP award prorated for the portion of the year he was employed, if such award is payable under the terms of the MICP
in the event that we terminate the executive for any reason other than for disability or cause, or if the executive terminates his employment for good reason, in each case during a period which qualifies as a potential change in control period or within two years after a change in control, the executive will receive the same payments and benefits as described above except that
the lump sum payment will be equal to three times the sum described above
participation in health, welfare and perquisite plans and programs will be for three years instead of one
the executive will be entitled to receive agross-up payment for any excise tax incurred under Section 280G and Section 4999 of the Code, but only if the total “parachute payments” exceed the executive’s untaxed safe harbor amount by 10% or more. We have agreed to reimburse the executive for the excise tax as well as any income tax and excise tax payable by the executive as a result of any reimbursements for the excise tax.
in the event of termination due to death or disability, the executive will receive an MICP award prorated for the portion of the year he was employed
In consideration for these payments, the executive has agreed to anon-competition covenant for one year following termination of employment or, in the case of Mr. Hennemuth, three years following a termination in connection with a change in control, and, in the case of Mr. Winterlich and Ms. Lehman, two years following a termination in
HEXCEL CORPORATION | 2019 Proxy Statement | 47 |
EXECUTIVE COMPENSATION
connection with a change in control. Each executive severance agreement annually renews automatically unless we notify the applicable executive of our intention not to renew, in which case the agreement will terminate one year following such notification.
Mr. Merlot’s severance benefits are determined by the French CLA. Pursuant to the French CLA, Mr. Merlot is entitled to receive the following upon termination of his employment:
up to 20X the average monthly compensation paid (based on the 12 months prior to termination), including bonus payments
n | up to 20 times the average monthly compensation paid (based on the 12 months prior to termination), including bonus payments; |
n | a notice period payment approximately equal to three times the compensation he received the month prior to termination; and |
n | a non-competition payment equal to 12 months’ average salary for the prior 12 months, including bonus payments (unless we waive his non-competition obligations). |
a notice period payment approximately equal to 3X the compensation he received the month prior to termination
anon-compete payment equal to 12 months’ average salary for the prior 12 months, including bonus payments (unless we waive hisnon-compete obligations)
Retirement Agreements
OurUS-based NEOs are party to various arrangements that provide for benefits payable upon retirement. As described on pages 49-50,42-43, the SERP agreementsagreement that we entered into with Messrs.Mr. Stanage and Krakower provideprovides for enhanced benefits upon our termination of the executivehim without cause, the executive’s termination by Mr. Stanage for good reason or the executive’sour termination of him without cause or termination by Mr. Stanage for good reason during a potential change in control or within two years following a change in control. Nonecontrol, and in connection with a potential change in control, if we terminate Mr. Stanage at the request of our other retirement programs for ourUS-based NEOs provide fora person who takes any form of enhanced or accelerated benefit upon resignation by the executive other than for good reason.action designed to cause a change in control.
Mr. Merlot’s retirement benefits are governed by the terms of the French CLA and French social programs. There is no provision for enhanced or accelerated benefits.
Equity Awards
Each of our NEOs has variousnamed executive officers hold outstanding NQOs, RSUs and PSAs outstanding.PSAs. Upon termination of employment of an NEO,a named executive officer, the treatment of the equity award depends on the nature of the termination. BelowThe following is a description of what happens to the NEO’s outstandingtreatment of a named executive officer’s equity awards upon each different type of termination and upon a change in control subject tounder the terms of the 2003 ISP or the 2013 ISP, as applicable.
NQOsapplicable award agreement.
Voluntary departure or termination without cause—NEO has 90 days to exercise the option to the extent vested; to the extent not vested, the option terminates.NQOs
n | Voluntary departure or termination without cause – the named executive officer has 90 days to exercise the NQO to the extent vested; to the extent not vested, the NQO terminates. |
n | Disability/Death – all NQOs immediately vest and remain exercisable for one year. |
n | Retirement – any unvested NQOs continue to vest on the schedule set forth in the option agreement, and the named executive officer has five years from the date of retirement to exercise the NQOs (but in no event can the named executive officer exercise an NQO after the expiration of the ten-year term of the NQO). |
n | Termination for Cause – all NQOs are forfeited. |
n | Change in Control – all NQOs (including NQOs held by a named executive officer who retired prior to the change in control) immediately vest, and if the named executive officer is terminated without cause or terminates his or her employment for good reason within two years after the change in control, the NQOs, to the extent they remain outstanding following the change in control, remain exercisable for two years. |
RSUs
n | Voluntary departure or termination with or without cause – all RSUs are forfeited. |
n | Disability/Death – all RSUs immediately vest and convert to common stock. |
n | Retirement – all RSUs continue to vest on the schedule set forth in the RSU agreement. If the named executive officer dies prior to the third anniversary of the grant date, all RSUs immediately vest and convert to common stock. |
n | Change in Control – all RSUs immediately vest and convert to common stock. |
48 | HEXCEL CORPORATION | 2019 Proxy Statement |
Disability/Death—all options immediately vest and remain exercisable for one year.
Retirement—any unvested NQOs continue to vest on the schedule set forth in the option agreement, and the NEO has five years from the date of retirement to exercise the NQOs (but in no event can the NEO exercise an NQO after the expiration of theten-year term of the option).
Termination for Cause—all options are forfeited.
Change in control—all options immediately vest, and if the NEO is terminated without cause or terminates his employment for good reason within two years after the change in control, the options, to the extent they remain outstanding following the change in control, remain exercisable for three years for theUS-based NEOs, and two years for Mr. Merlot.
RSUsEXECUTIVE COMPENSATION
Voluntary departure or termination with or without cause—all RSUs are forfeited.PSAs
n | Termination for cause – the entire award is forfeited. |
n | Termination by the company without cause, or due to disability, death, or by the named executive officer for good reason – the named executive officer is entitled to a pro rata award of common stock based on the portion of the performance period for which he or she was employed, and also based on the extent to which the performance target is attained. |
n | Retirement – the named executive officer is entitled to receive the full award of common stock for the performance period, in each case determined based on the actual level of attainment of the applicable performance goal. |
n | Change in Control – the award is paid out immediately, based on target performance. |
Disability/Death—all RSUs immediately vest and convert to stock.
Retirement—all RSUs continue to vest on the schedule set forth in the RSU agreement.
Change in control—all RSUs immediately vest and convert to common stock.
PSAs
Termination for cause—the entire award is forfeited.
Termination by the company without cause, or due to disability, death, or by the NEO for good reason—the NEO is entitled to a pro rata award based on the portion of the performance period for which he was employed, and also based on the extent to which the performance target is attained. If termination occurs within the first two years of the performance period, the award is limited to 100% of the shares available at target. If termination occurs within the third year of the performance period, the award will be prorated against the full amount of the award determined based on the actual level of attainment of the applicable performance goals.
Retirement—the NEO is entitled to receive the full award for the performance period, in each case determined based on the actual level of attainment of the applicable performance goal.
Change in Control—the PSA is paid out at target immediately, unless an acquiring company exchanges the PSA for the right to receive a comparable publicly traded security, in which case the PSA is paid out at target at the end of the performance period.
An employee generally qualifies for retirement if, upon termination of employment for any reason other than for cause, he or she is age 65 or age 55 with five or more years of service with us.
Our agreements relating to NQOs, RSUs and PSAs generally require that the employee comply with any obligation of confidentiality to us contained in any written agreement signed by the employee, and refrain from competing with us. Thenon-compete non-competition provision is substantially similar to that contained in the severance arrangements of our NEOsnamed executive officers described above. If the employee fails to comply with this requirement, then any outstanding equity grants are forfeited and the employee shallmust deliver to the company the number of shares the employee received during the180-day period immediately prior to the breach of thenon-compete non-competition requirement, and if the employee sold any shares during this180-day period, then the employee shallmust deliver to the company the proceeds of such sales. These equity grants are also subject to the terms of the applicable plans under which they were issued, including terms that cover other possible grounds for forfeiture or recoupment of payments and gains.gains, and terms under the plans providing for adjustments by the compensation committee upon specified events affecting the company.
Change in Control; Potential Change in Control; Good Reason; Cause
A “Change in Control” is generally defined in our plans and agreements to mean any of the following:
the acquisition by any person of 50% or more of our common stock
n | the acquisition by any person of 50% or more of our common stock |
n | the acquisition by any person of 40% or more of our common stock within a 12 month period |
n | a majority of the directors as of the date of the plan or agreement are replaced with persons who are not either (i) approved by the existing directors or (ii) approved by persons who were board approved replacements of the existing directors |
n | a merger of Hexcel or a sale of all or substantially all of the assets of Hexcel, unless (i) more than 50% of the stockholders of Hexcel prior to the transaction own the company resulting from the transaction in substantially the same proportion as they owned Hexcel prior to the transaction and (ii) the directors of Hexcel before the transaction comprise at least a majority of the directors of the company resulting from the transaction |
the acquisition by any person of 40% or more of our common stock within a 12 month period
a majority of the directors as of the date of the plan or agreement are replaced with persons who are not either (i) approved by the existing directors or (ii) approved by persons who were approved replacements of the existing directors
a merger of Hexcel or a sale of all or substantially all the assets of Hexcel, except if (i) more than 50% the stockholders of Hexcel prior to the transaction own the company resulting from the transaction in substantially the same proportion as they owned Hexcel prior to the transaction and (ii) the directors of Hexcel before the transaction comprise at least a majority of the directors of the company resulting from the transaction
However, an event that does not constitute a change in the ownership of Hexcel, a change in the effective control of Hexcel, or a change in the ownership of a substantial portion of Hexcel’s assets, each as defined Section 409A of the Internal Revenue Code, will not constitute a “Change in Control”.
A “Potential Change in Control,” as defined in the Severance Arrangements, exists during the period commencing at the time the company enters into an agreement that, if consummated, would result in a Change in Control and ends at the time such agreement either (i) results in a Change in Control or (ii) terminates, expires or otherwise becomes of no further force or effect.
HEXCEL CORPORATION | 2019 Proxy Statement | 49 |
EXECUTIVE COMPENSATION
“Good reason” generally is generally defined in our plansExecutive Severance Policy (applicable to Mr. Stanage) and agreementsMr. Hennemuth’s severance agreement to mean:
A material diminution in the executive’s position, duties, responsibilities or authority
n | A 10% (in the case of Mr. Stanage) or a material (in the case of Mr. Hennemuth) reduction in the executive’s base salary |
n | A material diminution in the executive’s position, duties, responsibilities or authority |
n | Failure by us to continue any compensation plan in which the executive participates that is material to the executive’s total compensation, unless replaced with a plan of substantially equivalent value |
n | Failure by us to continue to provide the executive with the benefits enjoyed by the executive under our pension, savings, life insurance, medical, health, accident, and disability plans in which the executive was participating, except for across-the-board changes similarly affecting all executives, or failure by us to continue to provide the executive with at least 20 paid vacation days per year (or more if the executive is entitled to more under our vacation policy) |
n | Failure to provide facilities or services which are reasonably necessary for the executive’s position |
n | Failure of any successor to Hexcel to assume our obligations under the relevant plan or agreement or failure by us to remain liable to the executive after such assumption |
n | Any termination by us of the executive’s employment that is not effected pursuant to a notice that complies with the applicable severance arrangement |
n | With respect to Mr. Hennemuth only, the relocation of his principal place of employment to a location more than 50 miles from his place of employment as of the date of his agreement |
n | Willful failure to pay the executive any portion of his compensation within a specified number of days after such compensation is due |
A materialMr. Winterlich’s and Ms. Lehman’s severance agreements generally define “good reason” as a 10% reduction in “Total Direct Compensation” (base salary, annual target under the executive’s base salary
Failure by us to continue any compensation plan in which the executive participates which is material to the executive’s total compensation, unless replaced with a planMICP, and grant date value of substantially equivalent value
Failure by us to continue to provide the executive with the benefits enjoyed by the executivean annual equity award under our pension, savings, life insurance, medical, health, accident, and disability plans in which the executive was participating, except foracross-the-board changes similarly affecting all executives, or failure by us to continue to provide the executive with at least twenty paid vacation days per year (or more if the executive is entitled to more under our vacation policy)incentive stock plan).
Failure to provide facilities or services which are reasonably necessary for the executive’s position
Failure of any successor to Hexcel to assume our obligations under the relevant plan or agreement or failure by us to remain liable to the executive after such assumption
In the case of the severance or SERP agreements, any termination by us of the executive’s employment which is not effected pursuant to a notice that complies with the relevant agreement
The relocation of the executive’s principal place of employment to a location more than fifty (50) miles from the executive’s place of employment as at the date of the relevant agreement
Failure to pay the executive any portion of compensation within seven (7) days of the date such compensation is due
“Cause” is generally defined in our plans and agreements applicable to NEOsnamed executive officers to mean (1)(i) the willful and continued failure by the NEOnamed executive officer to substantially perform his or her duties after we have notified the executive in writing with specificity of the nonperformance or (ii) the willful engagement by the NEOnamed executive officer in misconduct that materially harms us. Before we can terminate an NEOa named executive officer for cause, our board must give the NEOnamed executive officer notice describing the reasons we intend to terminate the NEOnamed executive for cause and must pass a resolution approved by at leasttwo-thirds of the board determining that the NEOnamed executive officer is guilty of the improper conduct, and must provide the NEOnamed executive officer with the opportunity to be heard before the board with counsel present.
50 | HEXCEL CORPORATION | 2019 Proxy Statement |
EXECUTIVE COMPENSATION
Potential Payments and Benefits Payable upon Termination of Employment on December 31, 20162018
Other than the benefits described on pages 38-40 and 52-57, there are no agreements, arrangements or plans that entitle executive officers to severance, perquisites, or other enhanced benefits upon termination of their employment that are not available to salaried employees generally.
The table below describes the potential benefitspayments and enhancementsbenefits under the company’s compensation and benefit plans and arrangements to which the NEOsnamed executive officers would be entitled upon termination of employment or a change in control (including a “potential change in control”) on December 31, 2016.2018, exclusive of items described in the introductory paragraph of this section. However, the following items are excluded from the table:such payments generally would not be provided in connection with a termination for cause.
The amounts reflected as the present value of the accumulated benefit in the “Pension Benefits Table” on page 51, all of which are vested
The balances under the NDCP listed in the “Nonqualified Deferred Compensation” table on page 52, all of which are vested
Benefits provided on anon-discriminatory basis to salaried employees generally upon termination of employment, such as accrued salary, vacation pay and distributions under an employee’s 401(k) plan
None of the payments or benefits reflected in the chart below would be payable solely in the event of a change in control without a subsequent termination, except for payment to Mr. Pensky or Mr. Hennemuth of his EDCA benefit and vesting and conversion of the equity awards for all NEOsnamed executive officers (and the related values) reflected below.
Benefits Payable Upon Termination of Employment on December 31, 2016
Cash Severance/ Payment at Death ($)(1) | Incremental Benefit under SERP or EDCA ($)(2) | Benefits Continuation ($)(3) | Accelerated Vesting of Equity Awards (value based on 12/31/2016 share price) ($)(4) | Total Termination Benefits ($) | ||||||||||||||||
Nick L. Stanage | ||||||||||||||||||||
• Voluntary retirement | — | — | — | — | — | |||||||||||||||
• Involuntary or good reason termination | 3,165,839 | 976,906 | 21,477 | — | 4,164,222 | |||||||||||||||
• Involuntary or good reason termination after change in control | 5,276,398 | 1,799,592 | 35,795 | — | 7,111,785 | |||||||||||||||
• Death | 1,500,000 | — | — | — | 1,500,000 | |||||||||||||||
• Disability | — | 1,953,554 | — | — | 1,953,554 | |||||||||||||||
Wayne C. Pensky | ||||||||||||||||||||
• Voluntary retirement | — | — | — | — | — | |||||||||||||||
• Involuntary termination | 1,007,248 | — | 10,135 | — | 1,017,383 | |||||||||||||||
• Involuntary or good reason termination after change in control | 3,021,745 | — | 30,405 | — | 3,052,150 | |||||||||||||||
• Death | 2,014,497 | — | — | — | 2,014,497 | |||||||||||||||
• Disability | — | — | — | — | — | |||||||||||||||
Ira J. Krakower | ||||||||||||||||||||
• Voluntary retirement | — | — | — | — | — | |||||||||||||||
• Involuntary or good reason termination | 814,997 | 180,382 | 4,601 | — | 999,980 | |||||||||||||||
• Involuntary or good reason termination after change in control | 2,444,990 | 541,011 | 13,803 | — | 2,999,804 | |||||||||||||||
• Death | 1,629,994 | — | — | — | 1,629,994 | |||||||||||||||
• Disability | — | — | — | — | — | |||||||||||||||
Robert G. Hennemuth | ||||||||||||||||||||
• Voluntary retirement | — | — | — | — | — | |||||||||||||||
• Involuntary or good reason termination | 720,092 | — | 11,792 | — | 731,884 | |||||||||||||||
• Involuntary or good reason termination after change in control | 2,160,277 | — | 35,376 | — | 2,195,653 | |||||||||||||||
• Death | 1,440,185 | — | — | — | 1,440,185 | |||||||||||||||
• Disability | — | — | — | — | — |
Cash Severance/ Payment at Death ($) | Non- Competition Payment ($)(5) | Benefits Continuation ($)(6) | Accelerated Vesting of Equity Awards (value based on 12/31/2016 share price) ($)(4) | Total Termination Benefits ($) | ||||||||||||||||
Thierry Merlot(10) | ||||||||||||||||||||
• Voluntary retirement(7) | — | — | — | — | — | |||||||||||||||
• Involuntary termination(8) | 886,875 | 491,945 | — | — | 1,378,820 | |||||||||||||||
• Involuntary termination after change in control | 886,875 | 491,945 | — | — | 1,378,820 | |||||||||||||||
• Death(9) | — | — | — | — | — | |||||||||||||||
• Disability(9) | — | — | — | — | — |
Cash
Severance/
Payment
at Death
($)(1) Incremental
Benefit
under
SERP
($)(2) Benefits
Continuation
($)(3) Accelerated
Vesting of
Equity Awards
(value based
on 12/31/2018
share price)
($)(4) Total
Termination
Benefits
($)Nick L. Stanage Voluntary retirement — — — — — Involuntary or good reason termination 4,300,641 1,035,209 22,611 — 5,358,461 Involuntary or good reason termination after change in control 5,375,802 2,070,417 37,686 — 7,483,905 Death 3,000,000 — — — 3,000,000 Disability — 1,624,156 — — 1,624,156 Patrick J. Winterlich Voluntary retirement — — — — — Involuntary or good reason termination 660,751 — 7,496 196,147 864,394 Involuntary or good reason termination after change in control 1,321,502 — 14,992 731,910 2,068,404 Death 2,390,209 — — 586,336 2,976,545 Disability — — — 586,336 586,336 Gail E. Lehman Voluntary retirement — — — — — Involuntary or good reason termination 662,079 — 14,474 221,147 897,700 Involuntary or good reason termination after change in control 1,324,158 — 28,948 703,446 2,056,552 Death 2,324,158 — — 501,810 2,825,968 Disability — — — 501,810 501,810 Robert G. Hennemuth Voluntary retirement — — — — — Involuntary or good reason termination 728,890 — 10,566 — 739,456 Involuntary or good reason termination after change in control 2,186,670 — 31,698 — 2,218,368 Death 2,457,780 — — — 2,457,780 Disability — — — — —
HEXCEL CORPORATION | 2019 Proxy Statement | 51 |
EXECUTIVE COMPENSATION
Cash Severance/ Payment at Death ($)(1) | Non- Competition Payment ($)(5) | Benefits Continuation ($)(3) | Accelerated Vesting of Equity Awards (value based on 12/31/2018 share price) ($)(4) | Total Termination Benefits ($) | ||||||||||||||||
Thierry Merlot(6) | ||||||||||||||||||||
Voluntary retirement(7) | — | — | — | — | — | |||||||||||||||
Involuntary termination(8) | 1,097,275 | 601,812 | — | — | 1,699,087 | |||||||||||||||
Involuntary termination after change in control(8) | 1,097,275 | 601,812 | — | — | 1,699,087 | |||||||||||||||
Death(9) | — | — | — | — | — | |||||||||||||||
Disability(9) | — | — | — | — | — |
(1) | Involuntary or good reason termination, with or without a change in control.For all |
Death. Represents the death benefit we agreed to provide to the executive.
Death.Represents the death benefit (assuming accidental death of the named executive officer) that would have been paid under agreements with Messrs. Stanage and Hennemuth and our executive life insurance and accidental death and dismemberment insurance policies. The death benefit disclosed for Messrs. Stanage and Winterlich and Ms. Lehman would have been paid by the insurers under our executive life insurance and accidental death and dismemberment insurance policies. For Mr. Hennemuth’s death benefit, $2,000,000 would have been paid by our insurers, with the remainder paid by the company pursuant to our agreement with Mr. Hennemuth. | |
(2) | For all |
(3) | Represents Hexcel’s share of the value of welfare/medical benefits for |
Mr. Merlot does not receive any additional welfare/medical benefits in the event of any type of termination, however he is entitled to benefits under the French CLA and unemployment insurance benefits. These benefits are paid by the French government and not by the company. |
(4) | Reflects the value of equity awards that were unvested on December 31, 2018, and that would have vested as a result of the indicated type of termination of employment of the named executive officer. The value of an equity award is not included for Messrs. Stanage, Hennemuth or Merlot because each of them was retirement eligible under the terms of the equity awards on December 31, 2018 and could have received the equity award immediately or in accordance with the schedule set forth in the applicable award agreement after retirement. |
(5) | Assumes that the company will provide a payment to Mr. Merlot in respect of his not competing with the company for a period of one year following employment termination. We may elect to release Mr. Merlot from the non-competition obligation, in which case no payment would be due to him. |
(6) | For Mr. Merlot, the amounts in this chart are paid or determined in the local currency, the euro, and converted to U.S. dollars at an exchange rate of 1.14 dollars per euro, which is based on the exchange rate in effect as of December 31, 2018. |
(7) | Mr. Merlot is not retirement eligible under the French CLA. |
(8) | Represents the payment upon dismissal due to Mr. Merlot under the French CLA. |
(9) | Mr. Merlot does not receive any additional benefits upon death or disability beyond the coverage provided by the French CLA or French insurance, which benefits are not paid by the company. |
HEXCEL CORPORATION | 2019 Proxy Statement |
Proposal 2—Approval of the 2018 Executive Compensation |
PROPOSAL 2—APPROVAL OF THE COMPANY’S 2016 EXECUTIVE COMPENSATION
We are seeking a stockholder vote with respect to compensation awardedprovided to our named executive officers for 20162018 as required pursuant to Section 14A of the Securities Exchange Act.Act of 1934, as amended.
The company’s executive compensation program and compensation paid to the named executive officers are described on pages 22-4117-35 of this proxy statement. The compensation committee oversees the program and compensation awarded, adopting changes to the program and awarding compensation as appropriate to reflect the company’s circumstances and to promote the main objectives of the program:our compensation philosophy, which is to provide competitive overalldeliver pay relative to peers, taking into account companyfor performance to effectively tie pay to performance, and to align the named executive officers’ interest with the interest ofthat creates sustainable value for our stockholders. We currently hold our advisory stockholder vote with respect to named executive officer compensation every year. The next advisory stockholder vote on named executive officer compensation will be held at our 2018 annual meeting of stockholders.
You may vote for or against the following resolution, or you may abstain. Abstentions will have the same effect as a vote against the resolution. Brokernon-votes will be disregarded and will have no effect on the outcome of the vote.
This vote is advisory andnon-binding. However, the compensation committee will review the voting results and take them into consideration as one factor when making future decisions regarding executive compensation, in conjunction with other factors such as feedback from stockholder outreach programs.
Accordingly, the board recommends that our stockholders vote in favor of the following resolution:
RESOLVED, that the stockholders approve the compensation of the company’s named executive officers, as disclosed under Securities and Exchange Commission rules, including the compensation discussion and analysis, and the compensation tables and related material included in this proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE RESOLUTION APPROVING THE COMPANY’S 2016 EXECUTIVE COMPENSATION
PROPOSAL 3—FREQUENCY OFSAY-ON-PAY VOTE
As required by Section 14A of the Exchange Act, we are seeking a stockholder vote about how often we should present stockholders with the opportunity to vote on the compensation awarded to our named executive officers, as described in the proxy statement for the 2019 Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE COMPANY’S 2018 EXECUTIVE COMPENSATION. |
HEXCEL CORPORATION | 2019 Proxy Statement | 53 |
Hexcel strives to provide market competitive pay and benefits that reward employees for performance and reflect internal pay equity for roles of similar scope and impact. We utilize published compensation survey data in each major market where we operate to assist us in providing competitive compensation in the country or region in which the jobs are performed. These compensation practices are key to supporting a diverse workforce and providing opportunities for all employees to contribute, develop new skills and abilities, and manage their careers. Hexcel is a global company that employs people in 15 countries.
Pursuant to SEC regulations, Hexcel determined the identity of its median paid employee, as well as the ratio of the annual total compensation paid to the median employee as compared to the annual total compensation paid to Hexcel’s CEO in 2018, as described below.
Measurement Date
We identified the median employee using our employee population as of December 31, 2018. As of that date, we had approximately 6,288 employees.
Measurement Process
We identified the median employee by determining, based on an examination of our internal records, the actual Total Cash Compensation of each of our employees globally as of the measurement date, December 31, 2018. Total Cash Compensation consists of base pay (including all differentials, on-call, vacation, sick and overtime pay) and annual bonus or sales incentives. Once the median employee was identified, we calculated the median employee’s annual total compensation in the same manner as we calculate the amount set forth in the “Total” column in the Summary Compensation Table (i.e., including items such as the value of stock and option awards, as well as retirement and benefit plans, to the extent applicable). We converted the amount of compensation paid to non-U.S. employees to U.S. dollars using the applicable exchange rate in effect on December 31, 2018.
Pay Ratio
We believe the pay ratio information set forth below, which was calculated in a manner consistent with SEC regulations, constitutes a reasonable estimate. As other companies may use different methodologies and assumptions to identify their median employee, the pay ratio set forth below may not be comparable to pay ratios reported by other companies.
Our median employee’s total annual compensation was $60,504. Our CEO’s total annual compensation was $6,346,562. Therefore, our CEO to median employee pay ratio is 104.9 to 1.
54 | HEXCEL CORPORATION | 2019 Proxy Statement |
On January 22, 2019, the compensation committee (sometimes referred to below as the “committee”) approved an amendment (the “Amendment”) to the Hexcel Corporation 2013 Incentive Stock Plan (the “Plan”) (the provision of the Amendment increasing the authorized number of shares available for issuance under the Plan also was approved by the board on February 6, 2019). If approved by stockholders, the Amendment will be effective immediately upon such approval. We believe that the Amendment advances the interests of Hexcel and its subsidiaries (the “Company”) and our stockholders by (i) increasing the number of shares authorized for issuance under the Plan, which will facilitate continuation of our equity compensation program, (ii) addressing changes in U.S. federal tax law, (iii) incorporating changes designed to place limitations upon share recycling and limitations on the payment of dividends and dividend equivalents, and (iv) clarifying certain provisions of the Plan.
The full text of the Plan, reflecting the modifications that will be in effect if the Amendment is approved, is set forth in Annex B to this proxy statement. If the Amendment is not approved by stockholders, the Plan will remain in effect in its current form, and Hexcel will continue to grant awards under the Plan until the shares available for grant are exhausted.
Principal Provisions of the Amendment
The Amendment would result in several modifications to the Plan, including those described below.
Increase in Authorized Number of Shares.The principal modification to the Plan under the Amendment is an increase in the authorized number of shares available for issuance under the Plan by 3,300,000 shares.
We believe that the increase in the number of shares available for issuance under the Plan will enable us to continue to fulfill the purpose of the Plan, which is to attract, motivate and retain our employees, directors and consultants, and provide them with the incentives to pursue the long-term profitability and success of the Company. In this regard, we believe that our equity awards promote achievement of longer term corporate goals, align the interests of Plan participants with those of our stockholders and serve as an important element in our provision of compensation opportunities that are competitive with other companies seeking comparable talent. In addition, our equity awards are an important component of our compensation program and reinforce a pay-for-performance culture. Absent stockholder approval of the Amendment, the number of shares currently available under the Plan may not be sufficient to meet our anticipated needs with respect to our equity compensation program beyond 2019.
In considering the number of additional shares to be authorized for issuance under the Amendment, the committee assessed our past equity grant practices as measured by our historical burn rate, and reviewed potential dilution to Hexcel’s stockholders as measured by overhang; and projected equity usage, as explained in more detail below. We believe these measures show that our grant practices are reasonable in light of the objectives of the Plan, and underscore our continued adherence to prudent equity award practices.
Historical Burn Rate– Burn rate represents the total number of shares underlying non-qualified stock options (“NQOs”), restricted stock units (“RSUs”) and performance share awards (“PSAs”) granted during the applicable year, divided by the basic weighted average common shares outstanding for the applicable year (NQOs, RSUs and PSAs are the only types of equity awards we have granted over the past several years). The historical burn rate for 2016, 2017 and 2018 was 0.5950%, 0.6846% and 0.4874%, respectively.
Overhang– Overhang represents the total number of shares available for future grants plus the total number of shares underlying outstanding NQOs, RSUs and PSAs, divided by the weighted average common shares outstanding at December 31, 2018. After taking into account the additional 3,300,000 shares to be authorized for issuance if the Amendment is approved by stockholders, the overhang at December 31, 2018 would have been 8.51%.
HEXCEL CORPORATION | 2019 Proxy Statement | 55 |
PROPOSAL 3—Approval of an Amendment to the Hexcel Corporation 2013 Incentive Stock Plan
Projected Equity Usage– The projected usage of shares for equity awards was estimated based on historical grants, mix of equity awards, and Hexcel’s stock price. Based on these factors, we anticipate that, if the Amendment is approved by the stockholders, shares available for issuance under the Plan will be sufficient for purposes of the equity component of our compensation program for at least seven years. However, future events, including changes in our business, stock price, equity grant practices of our competitors and other changes in circumstances, may affect the period of time during which sufficient authorized shares remain available.
As of February 28, 2019, we have issued 3,048,992 shares under the Plan, and there were 2,019,571 shares underlying outstanding awards under the Plan (including 1,089,114 shares underlying NQOs, 289,525 shares issuable under RSUs and 640,932 shares issuable under PSAs if maximum performance levels are achieved. Shares available for issuance with respect to awards that have not yet been granted under the Plan totaled 786,824 shares.
Modifications to Address Tax Law Changes.As described above under “Compensation Discussion and Analysis—Tax Considerations,” Section 162(m) of the Internal Revenue Code (“Section 162(m)”) was changed substantially as a result of federal tax reform legislation enacted in December 2017, commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). Prior to enactment of the TCJA and under Section 162(m), the $1 million per taxable year limit on Hexcel’s ability to deduct certain compensation paid to each of its “covered employees” (the Chief Executive Officer and our next three most highly-compensated executive officers, other than our Chief Financial Officer), did not apply to compensation that met the requirements of “qualified performance-based compensation.” The Plan included provisions regarding the grant of Qualified Performance-Based Awards (as defined in the Plan), which were intended to meet the requirements of “qualified performance-based compensation,” and, therefore, qualify for the exception from the limit on deductibility under Section 162(m). The TCJA generally eliminated the exception for “qualified performance-based compensation;” however, the exception remains available with respect to payments under certain “written binding contracts” in effect on November 2, 2017 and not materially modified thereafter). The Amendment includes the following modifications, principally designed to address the changes to Section 162(m):
n | No performance-based stock award granted on or after January 1, 2018 can be a Qualified Performance-Based Award. |
n | The specified performance goals and adjustments previously applicable to Qualified Performance-Based Awards may, at the discretion of the committee, be applied to other performance-based stock awards (the committee always had this discretion, but the Plan would make this discretion explicit with regard to the specified goals and adjustments). See “Summary of the Plan, as Proposed to be Amended—Performance-Based Awards” for a description of the specified goals and adjustments. However, the Amendment does not limit the committee’s discretion in determining the terms and conditions of the other performance-based stock awards, which, as is currently the case under the Plan, need not incorporate the specified performance goals or adjustments. |
n | The requirement that the committee consist solely of persons who qualify as an “outside director” within the meaning of Treasury Regulation Section 1.162-27(e)(3) will no longer be applicable, except with respect to any outstanding Qualified Performance-Based Awards. The Plan will continue, however, to require that all committee members qualify as “independent” under NYSE listing standards and as “non-employee directors” within the meaning of Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934, as amended. |
Modifications Designed to Place Limitations Upon Share Recycling and Limitations on Payment of Dividends and Dividend Equivalents.The Amendment provides the following:
n | Shares tendered or withheld to satisfy a participant’s tax withholding obligation will not be available for subsequent grants under the Plan. Currently, the Plan addresses only shares withheld to satisfy a tax withholding obligation. |
n | The exercise or settlement of SARs (as defined in the Plan) will reduce the shares of common stock available under the Plan by the total number of shares to which the exercise or settlement of the SARs relates, not just the net amount of shares actually issued upon exercise or settlement. |
n | In the event that the committee provides for the accrual of dividends or dividend equivalents with respect to an award under the Plan, such dividends or dividend equivalents will be subject to the same terms and conditions as, and shall in no event be paid prior to the vesting of, the award to which they relate. Currently, the Plan imposes this restriction on dividend equivalents, but not on dividends. |
56 | HEXCEL CORPORATION | 2019 Proxy Statement |
PROPOSAL 3—Approval of an Amendment to the Hexcel Corporation 2013 Incentive Stock Plan
Clarifying Changes.The Amendment provides clarification with respect several provisions in the Plan, including among others, the following:
n | The Plan currently provides that, in connection with specified extraordinary transactions, such as certain mergers or consolidations, a sale of all or substantially all of the Company’s assets or a dissolution or liquidation of Hexcel, the committee may, among other things, choose to cancel each award and have the Company make a cash payment to affected Plan participants in consideration of the cancellation. With respect to outstanding stock options or SARs, the amount to be paid in cash is equal to the excess of (x) the value, as determined by the committee, of the property (including cash) received by the holder of a share of common stock as a result of such event over (y) the exercise price of a share of common stock subject to such stock option or stock appreciation right. The Amendment clarifies that if the per share value of common stock equals or is less than the per share exercise price of a share of common stock subject to a participant’s stock option or stock appreciation right, the Company will not be required to make any payment to the participant. |
n | In connection with certain changes in Hexcel’s capitalization, including, without limitation, any extraordinary cash dividend, spin-off, split-off, sale of a subsidiary or business unit, or similar transaction effected without receipt or payment of consideration by the Company, the Amendment clarifies that the committee is required to make appropriate adjustments on an equitable basis. |
n | In connection with adjustments to outstanding awards made by the committee to address specified transactions, the Amendment clarifies that any fractional shares resulting from such adjustments shall be eliminated and that such adjustments must be consistent with Section 409A or 424 of the Internal Revenue Code (the “Code”), to the extent applicable. |
n | The Amendment adds a provision to the Plan explicitly stating that each participant is solely responsible for the tax consequences of awards under the Plan. |
Extension of Plan Termination Date.In accordance with the current terms of the Plan, if the Amendment is approved, the termination date of the Plan will be extended to the tenth anniversary of the date of stockholder approval of the Amendment.
Summary of the Plan, as Proposed to be Amended
The following is a summary of the principal features of the Plan, as proposed to be amended by the Amendment. This summary does not purport to be complete, and is qualified in its entirety by reference to the full text of the Plan, as proposed to be amended, which is attached to this proxy statement as Annex B.
Authorized Shares
If the proposed amendment to the Plan is approved by stockholders, a total of 7,105,000 shares will be available for issuance under the Plan (including shares underlying awards outstanding under the Plan and shares previously issued under the Plan). In addition, (i) shares underlying outstanding awards under the Plan and under the Hexcel Corporation 2003 Incentive Stock Plan (the “Prior Plan”) that are cancelled, forfeited, paid in cash, expire unexercised or terminate for any reason without the issuance of shares of common stock, and (ii) shares that are not actually issued pursuant to performance-based stock awards under the Plan and the Prior Plan because the maximum performance levels have not been achieved and such shares have not been earned, will again be available for grant under the Plan.
The closing price per share of Hexcel common stock on the NYSE on March 15, 2019 was $69.17.
The following categories of shares of common stock will not be available for grants of awards under the Plan: (i) shares tendered or withheld in payment of the exercise price of stock options, (ii) shares tendered or withheld by Hexcel to satisfy a participant’s tax withholding obligations, (iii) shares repurchased by Hexcel using the proceeds from the exercise of stock options and (iv) the total number of shares to which the exercise or settlement of an SAR relates (not just the net amount of shares actually issued upon exercise or settlement).
No more than 50% of the shares of common stock available for grant pursuant to awards under the Plan may be granted pursuant to awards other than stock options and SARs. For purposes of this limitation only, with respect to a performance-based stock award, the number of shares of common stock deemed to be granted is the number of shares that would ultimately be issued if the target level of the applicable performance condition is achieved.
HEXCEL CORPORATION | 2019 Proxy Statement | 57 |
PROPOSAL 3—Approval of an Amendment to the Hexcel Corporation 2013 Incentive Stock Plan
The maximum number of shares of common stock that may be covered by awards that are granted to any non-employee director in any calendar year is equal to 20,000 shares. Except as described below with respect to incentive stock options (“ISOs”) and adjustments, the Plan does not otherwise substantively limit the number of shares of common stock that may be covered by awards that are granted any participant.
Purpose
The purpose of the Plan is to attract, motivate and retain employees, directors and consultants of the Company, and to provide them with incentives to pursue the long-term profitability and success of the Company.
Administration
Subject to the terms of the Plan, the Plan is administered by the compensation committee of our board of directors. The committee must consist of two or more persons, each of whom qualifies as a “non-employee director” (within the meaning of Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934, as amended), as “independent” within the meaning of any applicable stock exchange listing rules or similar regulatory authority and, with respect to Qualified Performance-Based Awards, as an “outside director” within the meaning of Treasury Regulation Section 1.162-27(e)(3). The committee has the authority to administer the Plan, including without limitation the authority to (i) periodically make determinations with respect to the participation of employees, directors and consultants in the Plan, (ii) make determinations with respect to the terms of awards made pursuant to the Plan, provided that awards that vest based on the lapse of time must vest over a period of at least three years, and the performance period for performance-based stock awards must be at least one year, subject to such exceptions as the committee may make for death, disability, new hires, promotions, retirement, change in control, and other special circumstances, (iii) interpret and construe the provisions of the Plan and any award agreement under the Plan and (iv) prescribe, amend and rescind rules and regulations relating to their vote.
At the Annual Meeting of Stockholders in 2011, we recommended an annual vote. A majorityPlan. The committee may from time to time delegate its powers and responsibilities to a subcommittee of the stockholders who voted expressed their preference for holding an annual advisory vote on executive compensation annually. We continue to believe that an annual vote is most appropriate because it will allow shareholders to provide us with timely, direct input on executive compensation philosophy, policiescommittee. All decisions, determinations and practices and thereby provide a more regular means forinterpretations of the company to obtain information on investor sentiment about our executive compensation.
You may elect to havecommittee under the vote held annually, every two years or every three years, or you may abstain. You are not voting to approve or disapprove the board’s recommendation. Brokernon-votesPlan will be disregardedfinal, binding and will have no effectconclusive on all participants and other persons. In addition, the outcomecommittee may from time to time authorize a subcommittee consisting of one or more Hexcel directors (including directors who are employees of the vote. The voteCompany) or employees of the Company to grant awards pursuant to the Plan, subject to such restrictions and limitations as the committee may specify and to the requirements of applicable law.
Eligibility
All employees, directors and consultants of the Company are eligible to be selected by the committee to receive an award pursuant to the Plan (such a person who is advisory andnon-binding. The compensation committee will considerselected to receive an award is referred to herein as a “participant”). As of February 28, 2019, there are approximately 6,455 employees of the outcome in recommending a voting frequencyCompany, approximately 506 consultants to the Company, and 9 members of the Hexcel board of directors (exclusive of one director who also is an employee of Hexcel).
Award Types
The Plan permits grants of the following types of awards, subject to such terms and conditions as the committee shall determine, consistent with the terms of the Plan: (i) stock options, (ii) SARs, and (iii) other stock-based awards, which are equity-based or equity-related awards other than stock options, SARs or Qualified Performance-Based Awards. Due to changes in the federal income tax laws enacted in 2017, no additional Qualified Performance-Based Awards may be granted under the Plan.
Stock Options and SARs
Subject to the terms and conditions set forth in the Plan, the committee may grant stock options either in the form of ISOs or NQOs, or may grant SARs. ISOs are stock options that are designated by the committee as an incentive stock option and meet the applicable requirements of incentive stock options pursuant to Section 422 of the Code.
A stock option granted to a participant under the Plan enables a participant to purchase a specified number of shares of common stock at a specified exercise price per share during specified time periods, each as determined by the committee in its discretion, provided that no stock option may have a per share exercise price that is less than the Fair Market Value (as defined below) of a share of common stock on the grant date or a term of more than ten (10) years. A SAR granted to a participant under the Plan enables a participant to receive an amount of cash, or
58 | HEXCEL CORPORATION | 2019 Proxy Statement |
PROPOSAL 3—Approval of an Amendment to the Hexcel Corporation 2013 Incentive Stock Plan
shares of stock with a Fair Market Value, or both, equal to the increase in Fair Market Value of a specified number of shares of common stock between the grant date of the SAR and the date on which it is exercised. The exercise price per share of common stock covered by a SAR may not be less than the Fair Market Value of a share of common stock on the grant date, and a SAR may not have a term of more than 10 years.
For this purpose, “Fair Market Value” is equal to the closing sales price of a share of common stock on the grant date or, if not so reported for such day, the immediately preceding business day, of a share of common stock as reported on the principal securities exchange on which shares of common stock are then listed or admitted to trading.
A stock option or SAR may be exercised by such methods and procedures as the committee determines from time to time. The exercise price of shares of common stock purchased upon exercise of stock options may be paid in any manner determined by the committee from time to time, including without limitation through net physical settlement or other method of cashless exercise.
Stock options granted under the Plan that are intended to qualify as ISOs are subject to certain additional terms and conditions as set forth in the Plan, including: (i) each stock option that is intended to qualify as an ISO must be designated as an ISO in the applicable award agreement, (ii) ISOs may be granted only to individuals who are employees of the Company, (iii) the aggregate Fair Market Value (determined as of the grant date of the ISOs) of the number of shares of common stock with respect to which ISOs are exercisable for the first time by any participant during any calendar year under all plans of the Company cannot exceed $100,000, or such other maximum amount as is then applicable under Section 422 of the Code, and (iv) no ISO may be granted to a person who, at the time of the proposed grant, owns (or is deemed to own under the Code) stock possessing more than 10% of the total combined voting power of all classes of common stock of the Company unless (a) the exercise price of such ISO is at least 110% of the Fair Market Value of a share of common stock at the time such ISO is granted and (b) such ISO is not exercisable after the expiration of five years from its grant date. The maximum number of shares of common stock that may be subject to awards granted under the Plan that are intended to be ISOs may not exceed 400,000 shares of common stock in the aggregate. Any stock option granted under the Plan that is designated as an ISO but for any reason fails to meet the requirements of an ISO will be treated under the Plan as a NQO.
Any repricing of a stock option or cash tender by Hexcel for a stock option will require the approval of Hexcel’s stockholders.
Other Stock-Based Awards
Other stock-based awards are equity-based or equity-related awards other than stock options, SARs or Qualified Performance-Based Awards that are denominated in, or have a value determined by reference to, a number of shares of common stock that is specified at the time of grant, subject to such terms and conditions as the committee may determine. Other stock-based awards may include, without limitation, phantom stock, restricted stock units, deferred share units or share-denominated performance units, any of which may be settled in shares of common stock or by payment in cash or otherwise, based on the value of shares of common stock. In addition, other stock-based awards may be subject to performance-based and/or service-based conditions. Other stock-based awards we previously have granted under the Plan include RSUs and PSAs.
Performance-Based Awards
Performance-based awards under the Plan include Qualified Performance-Based Awards and other stock-based awards that are subject to performance conditions, which we refer to below as “other performance-based awards.” Qualified Performance-Based Awards were intended to meet the requirements of “qualified performance-based compensation,” and therefore qualify for the exemption from the limit on deductibility under Section 162(m), which is described in more detail above under “Modifications to Address Tax Law Changes.” However, the TCJA eliminated the exemption in 2017 (subject to an exception for payments under certain “written binding contracts” in effect on November 2, 2017 and not materially modified thereafter), and, therefore, no Qualified Performance-Based Awards may be granted on or after January 1, 2018. As all outstanding Qualified Performance-Based Awards granted prior to November 2, 2017 may qualify for the exemption from the limit on deductibility under Section 162(m), provisions of the Plan relating to Qualified Performance-Based Awards continue to be in effect with respect to these awards.
HEXCEL CORPORATION | 2019 Proxy Statement | 59 |
PROPOSAL 3—Approval of an Amendment to the Hexcel Corporation 2013 Incentive Stock Plan
The performance goals applicable to Qualified Performance-Based Awards, and that may be applicable to other performance-based awards, may relate to the performance of Hexcel, a subsidiary, any subsection of the Company’s business or any combination thereof and may be expressed as an amount or as an increase or decrease over a specified period or a relative comparison of performance to the performance of a peer group of entities or other external measure, and shall (or with respect to other performance-based awards, may) be based on one or more of the following: earnings, cash flow, customer satisfaction, safety, revenues, financial return ratios, market performance, productivity, costs, stockholder return and/or value, operating profits (including earnings before any or all of interest, taxes, depreciation and amortization), net profits, earnings per share, profit returns or margins, stock price and working capital (or elements thereof). In determining attainment of a performance goal applicable to a performance-based award, the committee shall (or, solely with respect to a other performance-based award, may) exclude the negative impact of unusual, non-recurring or extraordinary items attributable to (i) acquisitions or dispositions of stock or assets, (ii) any changes in accounting standards or treatments that may be required or permitted by the Financial Accounting Standards Board, Public Company Accounting Oversight Board or adopted by Hexcel or its subsidiaries after the goal is established, (iii) restructuring activities, (iv) disposal of a segment of a business, (v) discontinued operations, (vi) the refinancing or repurchase of bank loans or debt securities, (vii) unbudgeted capital expenditures, (viii) the issuance or repurchase of equity securities and other changes in the number of outstanding shares, (ix) conversion of some or all of convertible securities to common stock and (x) any business interruption event.
For purposes of clarity, the foregoing provisions do not limit the committee’s discretion to determine the terms and conditions of other performance-based awards, including any adjustments to the awards, which need not incorporate the specified performance goals or adjustments.
Dividends and Dividend Equivalents
The committee may provide for the payment of dividends or dividend equivalents with respect to an award. However, such dividends or dividend equivalents will be subject to the same terms and conditions as, and shall in no event be paid prior to the vesting of, the award to which they relate.
Amendment and Termination
The committee has the authority to terminate the Plan or make such modifications or amendments to the Plan as it may deem advisable, but no amendment to the Plan that requires stockholder approval under applicable law, rule, regulation or stock exchange listing requirement will become effective without the approval of our stockholders. In addition, no termination, modification or amendment of the Plan may adversely affect the rights of a participant under an outstanding award without the consent of such participant.
Adjustments
The Plan includes provisions that require or permit the committee to make certain adjustments upon the occurrence of specified events, including provisions that provide as follows: (i) in the event of any change in the number or type of shares of Hexcel common stock outstanding by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or any other event or transaction, the committee will make equitable adjustments in the type of shares and in the limitations on the number of shares with respect to which the committee may grant awards under the Plan, (ii) in the event of any increase or decrease in the number or type of issued shares of Hexcel common stock resulting from a subdivision or consolidation of shares of common stock or the payment of a stock dividend, or any other increase or decrease in the number of such shares without receipt or payment of consideration by the Company, the committee will equitably adjust the type or number of shares subject to each outstanding award and the exercise price per share, if any, of shares subject to each such award, (iii) in the event of a merger, consolidation or similar transaction as a result of which the holders of shares of Hexcel common stock receive consideration consisting exclusively of securities of the surviving corporation in such transaction, the committee will appropriately adjust each outstanding award so that it pertains and applies to the securities which a holder of the number of shares of common stock subject to such award would have received in such transaction, (iv) in the event of a dissolution or liquidation of Hexcel, a sale of all or substantially all of the Company’s assets or a merger, consolidation or similar transaction involving Hexcel in which the holders of Hexcel common stock receive securities, cash and/or other property (other than shares of the surviving corporation in such transaction), the committee may either cancel outstanding awards and provide for cash payments to participants in consideration of such cancellation, or provide for the exchange of outstanding awards for awards with respect to some or all of the property received by holders of common stock in the transaction (and may also provide for payment to the
60 | HEXCEL CORPORATION | 2019 Proxy Statement |
PROPOSAL 3—Approval of an Amendment to the Hexcel Corporation 2013 Incentive Stock Plan
participant in partial consideration for payment of the award), and (v) in the event of any change in the capitalization of Hexcel or other corporate change (other than those described in (ii), (iii) and (iv) above, including, without limitation, any extraordinary cash dividend, spin-off, split-off, or sale of a subsidiary or business unit, the committee will make equitable adjustments to the issuer, number and type of shares subject to awards and such other terms of such award as the committee considers appropriate.
Provisions Relating to Awards Issued to Replace Awards of an Acquired Entity
In the context of a corporate acquisition or merger, the committee may grant awards under the Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity-based awards of an entity other than Hexcel. Unless otherwise required by the listing rules of any securities exchange on which shares of common stock are traded, common stock covered by such awards will not count against the number of shares otherwise available for issuance under the Plan.
Effective Date and Termination
The Plan originally became effective on May 2, 2013, the date on which stockholders initially approved the Plan. The Amendment, if approved, will be effective immediately following stockholder approval. In accordance with the terms of the Plan, as adopted, if the Amendment is approved, the termination date of the Plan will be extended to the tenth anniversary of the date of stockholder approval. Any approval by stockholders of any subsequent amendment to the Plan will further extend the termination date of the Plan to the tenth anniversary of the date of such stockholder approval.
U.S. Federal Income Tax Consequences
The following discussion is a brief summary of certain United States federal income tax consequences under current federal income tax laws relating to certain types of awards under the Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. United States tax laws may change, and United States federal, state and local tax consequences for any participant will depend on his or her individual circumstances.
NQOs
A participant will not recognize any taxable income upon the grant of a NQO and the Company will not be bound either by its own recommendation orentitled to a tax deduction with respect to such grant.
Upon exercise of a NQO, the participant will recognize compensation income in an amount equal to the excess of the aggregate fair market value of the acquired shares of our common stock on the exercise date over the aggregate exercise price paid by the outcomeparticipant. The amount of compensation income recognized by the participant is subject to applicable payroll taxes. Hexcel generally will be entitled to a tax deduction in an amount equal to the compensation income recognized by the participant, at the time such compensation income is recognized. The participant’s tax basis for the shares of our common stock received pursuant to the exercise of a NQO will equal the sum of the vote,compensation income recognized and may choosethe exercise price.
In the event of a sale or other disposition of shares of our common stock received upon the exercise of a NQO, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss and will be long-term or short-term capital gain or loss, depending on how long the shares were held by the participant prior to conduct the vote moresale.
HEXCEL CORPORATION | 2019 Proxy Statement | 61 |
PROPOSAL 3—Approval of an Amendment to the Hexcel Corporation 2013 Incentive Stock Plan
ISOs
A participant will not recognize any taxable income upon the grant or less frequentlyexercise of an ISO, but the excess of the aggregate fair market value of the acquired shares of our common stock on the exercise date (the “ISO shares”) over the aggregate exercise price paid by the participant is included in the futureparticipant’s income for alternative minimum tax purposes. Hexcel will not be entitled to a tax deduction with respect to such grant or exercise. Upon a disposition of the ISO shares more than two years after grant of the ISOs and one year after exercise of the ISOs, any gain or loss is treated as long-term capital gain or loss. In such case, Hexcel would not be entitled to a deduction. If the participant sells the ISO shares prior to the expiration of these holding periods, the participant recognizes compensation income at the time of disposition equal to the excess, if any, of the lesser of (1) the aggregate fair market value of the ISO shares on the exercise date and (2) the amount received for the ISO shares, over the aggregate exercise price previously paid by the participant. Any gain or loss recognized on such a premature disposition of the ISO shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on how long the shares were held by the participant prior to the sale. Hexcel generally will be entitled to a deduction in an amount equal to the compensation income recognized by the participant, at the time such compensation income is recognized.
Restricted Stock and Restricted Stock Units
A participant will not recognize any taxable income upon the grant of a restricted stock award and the Company will not be entitled to a tax deduction with respect to such grant. When the restrictions lapse with regard to any installment of restricted stock, the participant will recognize ordinary income in an amount equal to the fair market value of the shares with respect to which the restrictions lapse, unless the participant elected to realize compensation income in the year the award is granted in an amount equal to the fair market value of the restricted stock awarded, determined without regard to the restrictions. A participant will not recognize any taxable income upon the grant of RSUs, and Hexcel will not be entitled to a tax deduction with respect to such grant. The participant will recognize compensation income at the time the RSUs are settled, in an amount equal to the cash paid or the fair market value of the shares delivered to the participant. The amount of compensation income recognized by the participant is subject to applicable payroll taxes. Hexcel generally will be entitled to a deduction in an amount equal to the compensation income recognized by the participant, at the time such compensation income is recognized.
Performance-Based Awards
A participant will not recognize any taxable income upon the grant of a performance-based award and the Company will not be entitled to a tax deduction with respect to such grant. The participant will recognize compensation income at the time the performance-based award vests or is settled, depending on the structure of the award, in an amount equal to the dollar amount, or the fair market value of the shares of common stock, subject to the award. The amount of compensation income recognized by the participant is subject to payroll taxes. Hexcel generally will be entitled to a deduction in an amount equal to the compensation income recognized by the participant, at the time such compensation income is recognized.
New Plan Benefits
Future awards to employees under the Plan will be subject to the discretion of the committee and cannot be determined at this time. While non-employee directors receive RSUs under our non-employee director compensation program based on other factors, such as feedback from shareholder outreach programs,a fixed grant date fair value, the adoption or revisionnumber of compensation policies, orRSUs granted will be based upon the outcomefair market value of “Say on Pay” votes.our common stock at future dates, and the amount of the grant date fair value of RSUs to be granted to the directors may change.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE HEXCEL CORPORATION 2013 INCENTIVE STOCK PLAN. |
62 | HEXCEL CORPORATION | 2019 Proxy Statement |
AN ANNUAL STOCKHOLDER ADVISORY VOTE
REGARDING COMPENSATION AWARDED TO HEXCEL’S NAMED EXECUTIVE OFFICERS
Equity Compensation Plan Information |
EQUITY COMPENSATION PLAN INFORMATION
The following information is provided as of December 31, 2016:2018. All numbers in columns (a) and (c) refer to shares of Hexcel common stock.
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))(1) | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c) | |||||||||||||||||||
(a) | (b) | (c) | |||||||||||||||||||||||
Equity compensation plans approved by security holders | 3,513,094(2) | $ | 26.08(3) | 2,501,625(4) | 2,079,776 | (1) | $38.97 | (2) | 1,411,186 | (3) | |||||||||||||||
Equity compensation plans not approved by security holders | 0 | N/A | 0 | — | N/A | — | |||||||||||||||||||
|
|
| |||||||||||||||||||||||
Total | 3,513,094 | �� | $ | 26.08(3) | 2,501,625(4) | 2,079,776 | (1) | $38.97 | (2) | 1,411,186 | (3) | ||||||||||||||
|
|
|
(1) |
Includes |
(2) | Excludes the RSUs and PSAs referred to in note |
(3) | Includes: (i) |
HEXCEL CORPORATION | 2019 Proxy Statement | 63 |
The audit committee is responsible for assisting the board’sboard in its oversight of the integrity of our financial statements, our exposure to financial risk and mitigation of those risks, our compliance with legal and regulatory requirements, our independent registered public accounting firm’s qualifications, independence and performance, and our internal audit function. We also appoint our independent registered public accounting firm, and submit our selection to our stockholders for ratification. We operate under a written charter adopted and approved by the Boardboard of Directors,directors, which is available aton our website,www.hexcel.com.
Management is responsible for the financial reporting process, including the system of internal controls, and for the preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States. Our independent registered public accounting firm is responsible for performing an integrated audit of the Company’s financial statements and internal control over financial reporting in accordance with the auditing standards of the Public Company Accounting Oversight Board (“PCAOB”). Our responsibility is to monitor and review these processes.
We held eight meetings and acted once by unanimous written consent in 2016,2018, held numerous discussions with management and met in executive session, without management, with Ernst & Young LLP, our independent registered public accounting firm for 2016.2018. We also met in executive session, without management present, with our internal auditors. We have reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. We discussed with the independent registered public accounting firm matters required to be discussed bypursuant to PCAOB standards, as amended (AICPA,Professional Standards, Vol 1. AU Section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T.Auditing Standard No. 1301, “Communications with Audit Committees.”
Our independent registered public accounting firm also provided the written disclosures required by applicable requirements of the PCAOB, Rule No. 3526,Communications with Audit Committees Concerning Independence, and we discussed with the independent registered public accounting firm their independence.
Based on our review and the discussions referred to above, wethe audit committee recommended that the board of directors include ourHexcel’s audited consolidated financial statements in the Annual Report on Form10-K for the year ended December 31, 2016 filed2018 for filing with the SEC.Securities and Exchange Commission.
Jeffrey C. Campbell, Chair
Lynn Brubaker
Cynthia M. Egnotovich
David C. HillCatherine A. Suever
The Members of the Audit Committee
64 | HEXCEL CORPORATION | 2019 Proxy Statement |
PROPOSAL 4—RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Proposal 4—Ratification of Selection of Independent Registered Public Accounting Firm |
The audit committee completed a competitive process to determine what audit firm would serve as the company’s independent accountants for fiscal 2016. On March 14, 2016, the audit committee approved the engagement of Ernst & Young LLP (“EY”) as auditors for the company, effective immediately, thereby dismissing PricewaterhouseCoopers LLP (“PwC”) from that role. We are asking stockholders to ratify the audit committee’s appointment of EYErnst & Young LLP (“EY”) as our independent registered public accounting firm for 2017.2019. Stockholder ratification of the appointment of EY is not required under our Restated Certificate of Incorporation, Bylaws or Amended and Restated Bylaws,otherwise, but is being submitted as a matter of good corporate practice. The audit committee is not bound by the outcome of this vote, but, if the appointment of EY is not ratified by our stockholders, the audit committee will reconsider the appointment.
EY has audited our financial statements annually since 2016. A representative of EY is expected to be present at the Annual Meeting. The representative will have an opportunity to make a statement if he or she desires to do so and will be available to answer appropriate questions from stockholders.stockholders present at the meeting.
Change in Auditor
PwC served as the company’s independent registered public accounting firm since 1997. The audit reports of PwC on the consolidated financial statements of the company as of and for the years ended December 31, 2015 and December 31, 2014 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.
During the company’s fiscal years ended December 31, 2015 and December 31, 2014 and through March 14, 2016, as confirmed by PwC to the company in writing, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to the satisfaction of PwC would have caused PwC to make reference thereto in its reports on the financial statements of the company for such years. During the company’s years ended December 31, 2015 and December 31, 2014 and through March 14, 2016, neither the company nor anyone on the Company’s behalf consulted EY regarding any of the matters referred to in Item 304(a)(2)(i) and (ii) of RegulationS-K.
The company provided PwC with a copy of the disclosure it made in a Current Report on Form8-K (the “Report”) prior to the time the Report was filed with the SEC. The company requested that PwC furnish a letter addressed to the SEC stating whether or not it agrees with the statements made therein. A copy of PwC’s letter was attached as Exhibit 16.1 to the Report.
The following table shows the aggregate fees for professional services rendered by EY for the company by each of EYin 2018 and PwC, for fiscal 2016 and 2015,2017, respectively:
Year Ended December 31, | ||||||||||||||||
Year Ended December 31, | 2018 | 2017 | ||||||||||||||
2016 | 2015 | |||||||||||||||
Audit fees(1) | $ | 2,487,000 | $ | 2,662,000 | ||||||||||||
Audit-related fees(2) | — | 15,000 | ||||||||||||||
Tax-related fees(3) | 754,000 | 1,192,000 | ||||||||||||||
All other fees(4) | 27,000 | 3,000 | ||||||||||||||
|
| |||||||||||||||
Audit fees(1) | $ | 2,792,000 | $ | 2,994,000 | ||||||||||||
Audit-related fees(2) | 15,000 | 150,000 | ||||||||||||||
Tax-related fees(3) | 201,000 | 90,000 | ||||||||||||||
All other fees(4) | 115,000 | 25,000 | ||||||||||||||
Total | $ | 3,268,000 | $ | 3,872,000 | $ | 3,123,000 | $ | 3,259,000 | ||||||||
|
|
(1) | Audit fees relate to professional services rendered in connection with the audit of our annual financial statements, |
(2) | Audit-related fees comprise fees for assurance and related services reasonably related to the performance of the audit or review of our financial |
(3) | Tax-related fees are fees incurred for professional services rendered for tax planning, tax compliance and tax advice. |
(4) | All other fees |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP. |
HEXCEL CORPORATION | 2019 Proxy Statement | 65 |
Certain Relationships and Related Person Transactions |
Our audit committee’s policy is topre-approve all audit and permissiblenon-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. The independent registered public accounting firm and management are required to periodically report to the audit committee regarding the amount of audit andnon-audit service fees incurred to date.
Rule2-01(c)(7)(i) under SEC RegulationS-X provides that a company’s independent registered public accounting firm can provide certainnon-audit services without the prior approval of the audit committee if certain conditions are met, including that the services are incurred in accordance with policies and procedures detailed as to the particular service adopted by the company and are brought promptly to the attention of the audit committee.
The ratification of the appointment of EY requires the affirmative vote of a majority of the shares present in person or by proxy and entitled to vote on the matter at the Annual Meeting once a quorum is present. Abstentions will be counted and will have the same effect as a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review and Approval of Related Person Transactions
We have adopted a written policy that requires the review andpre-approval of all potential transactions valued at greater than $10,000 in which we and any of our directors, executive officers, stockholders owning greater than 5% of any class of our securities or any of their immediate family members participates or otherwise has an interest. The audit committee is responsible for evaluating and authorizing any transaction with a value greater than $120,000, although any member of the audit committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction in question. The Chief Financial Officer is responsible for evaluating and authorizing any transaction with a value between $10,000 and $120,000, unless the Chief Financial Officer is a related person with respect to the transaction under review, in which case the General Counsel shallwill be responsible for such evaluation and possible authorization.
The factors to be considered in determining whether or not to authorize a transaction brought to the attention of the audit committee or the Chief Financial Officer under this policy include the following:
n | the terms of the transaction, and whether the terms are no less favorable to us than would be obtained in the transaction were entered into with a party other than a related person; |
n | the benefits to us; |
n | the availability of other sources for the product or service that is the subject of the transaction; |
n | the timing of the transaction; |
n | the potential impact of the transaction on a director’s independence; and |
n | any other factors deemed relevant. |
66 | HEXCEL CORPORATION | 2019 Proxy Statement |
the terms of the transaction, and whether the terms are no less favorable to us than would be obtained in the transaction were entered into with a party other than a related person
Section 16(a) Beneficial Ownership Reporting Compliance |
the benefits to us
the availability of other sources for the product or service that is the subject of the transaction
the timing of the transaction
the potential impact of the transaction on a director’s independence
any other factors deemed relevant
The company had no related person transactions since the beginning of 2016, and is not currently aware of any proposed related person transactions.
Our charter requires us generally to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. Additionally, as permitted by Delaware law, we have entered into indemnification agreements with each of our directors and executive officers. Under the indemnification agreement, we have agreed to hold harmless and indemnify each indemnitee, generally to the fullest extent permitted by Delaware law, against expenses, liabilities and loss incurred in connection with threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative to which the indemnitee is made a part by reason of the fact that the indemnitee is or was a director or officer of the company or any other entity at our request; provided, however, that the indemnitee acted in good faith and in manner reasonably believed to be in the best interest of our company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our directors and executive officers, and persons who beneficially own more than ten percent of a registered class of our equity securities registered under the Exchange Act, to file with the SEC initial reports of ownership and reports of changes in ownership of Hexcel common stock. Executive officers, directors, and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, basedBased solely on a review of the copies of such reports furnished to usfiled and representations that no other reports were required,from our directors and executive officers, for the year ended December 31, 2016,2018, we believe that all Section 16(a) filing requirements applicable to our executive officers directors and greater than ten percent stockholdersdirectors were complied with.with, except that reports of changes in beneficial ownership were filed after the applicable due date for (i) Messrs. Winterlich and Merlot with respect to sales of 1,500 shares and 1,709 shares, respectively, and (ii) Mr. Graves with respect to the grant of RSUs in lieu of a portion of his quarterly cash retainer.
HEXCEL CORPORATION | 2019 Proxy Statement | 67 |
As of the date of this proxy statement, the board of directors does not know of any other matters to be presented for actionconsideration by the stockholders at the Annual Meeting. However, if any other matters not known are properly brought before the Annual Meeting, proxies will be voted at the discretion of the proxy holders and in accordance with their judgment on such matters.
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Stockholder proposals intended for inclusion in our proxy materialsstatement and annual report for the 20182020 annual meeting of stockholders pursuant to Rule14a-8 under the Exchange Act must be submitted in writing not later than November 17, 2017 to the Corporate Secretaryus at Hexcel Corporation, Attention: Corporate Secretary, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901-3238.Connecticut 06901, must be received by us no later than November 23, 2019 and must comply in all other respects with SEC regulations relating to such inclusion.
Our Bylaws require that proposals of stockholders that are made outside of Rule14a-8 under the Exchange Actother than proposals submitted for inclusion in our proxy statement and proxy, and nominations for the election of directors at the 20182020 annual meeting of stockholders be submitted, in accordance with the requirements of our Bylaws,received by us not later than January 4, 201810, 2020, and must be accompanied by additional information specified in order to be considered timely. Stockholders are also advised to review our Bylaws, a copy of which contain additional requirements about advance notice of stockholder proposals and director nominations. We may exclude untimely proposals frombe obtained upon request to our 2018 proxy statement. Management proxies will have discretionary authority to vote onCorporate Secretary at the subject matter of the excluded proposal if otherwise properly brought before the annual meeting.address provided above.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
HEXCEL CORPORATION | 2019 Proxy Statement | 69 |
STOCKHOLDER MEETING TO BE HELD ON MAY 4, 2017
The proxy statement, annual report to security holders and related materials are available athttp://phx.corporate-ir.net/phoenix.zhtml?c=75598&p=proxy.
Annual Report |
Our Annual Report to Stockholders containing the company’s audited consolidated financial statements for the year ended December 31, 2016,2018, is being mailed herewithtogether with this proxy statement to all stockholders of record.record that have not provided contrary instructions. Additional copies are available without charge onupon request. Requests should be addressed to the Corporate Secretary, Hexcel Corporation, Attention: Vice President, Investor Relations, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901-3238.06901.
Stamford, Connecticut
70 | HEXCEL CORPORATION | 2019 Proxy Statement |
March 17, 2017
Annex A |
ANNEX 1
Reconciliation of Adjusted EPS to GAAP EPS:
Year Ended December 31, | ||||||||
(In millions) | 2016 | 2015 | ||||||
GAAP net income | $ | 249.8 | $ | 237.2 | ||||
Other expense, net of tax | — | — | ||||||
Non-operating expense, net of tax | 0.3 | — | ||||||
Discrete tax benefits | (6.6 | ) | (11.6 | ) | ||||
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Adjusted net income(Non-GAAP) | $ | 243.5 | $ | 225.6 | ||||
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Diluted Shares (GAAP) | 94.2 | 97.2 | ||||||
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Earnings per Share (GAAP) | 2.65 | 2.44 | ||||||
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Adjusted Earnings per Share(Non-GAAP) | $ | 2.58 | $ | 2.32 | ||||
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Year Ended December 31, | |||||||||||
(All in millions, except earnings per share) | 2018 | 2017 | |||||||||
GAAP net income | $ | 276.6 | $ | 284.0 | |||||||
Restructuring expense(1) | 5.4 | — | |||||||||
Discrete tax benefits(2) | (4.7 | ) | (15.6 | ) | |||||||
Tax Legislation(3) | (6.2 | ) | (22.1 | ) | |||||||
Adjusted net income (Non-GAAP) | $ | 271.1 | $ | 246.3 | |||||||
Diluted Shares (GAAP) | 89.0 | 91.9 | |||||||||
Earnings per Share (GAAP) | $ | 3.11 | $ | 3.09 | |||||||
Adjusted Earnings per Share (Non-GAAP) | $ | 3.05 | $ | 2.68 |
(1) | The year ended December 31, 2018 included restructuring expense for a European facility. | |
(2) | The year ended December 31, 2018 included benefits of $4.7 million related to the release of a valuation allowance in a foreign jurisdiction and release of reserves for uncertain tax positions. The year ended December 31, 2017 included benefits of $9.1 million primarily related to the release of a valuation allowance in a foreign jurisdiction, as well as $6.5 million related to the release of reserves for uncertain tax positions. | |
(3) | The years ended December 31, 2018 and 2017 included benefits of $6.2 million from a tax method accounting change related to the enactment of U.S. tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”) and $22.1 million related to the TCJA, respectively. |
We believe that adjusted net income and adjusted diluted net earnings per share, each of which is a non-GAAP financial measure, is meaningful to investors because it provides a view of Hexcel with respect to ongoing operating results exclusive of items that are not indicative of our underlying core performance or business trends. Special items represent significant charges or credits that are important to an understanding of Hexcel’s overall operating results in the periods presented. This non-GAAP measure is not presented in accordance with U.S. generally accepted accounting principles (GAAP) and should not be viewed as an alternative to GAAP measures of performance.
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Annex B |
HEXCEL CORPORATION
2013 INCENTIVE STOCK PLAN
(as amended to reflect Amendment 2019-1)
I. Purpose
The Plan is intended to attract, motivate and retain Employees, Directors and consultants of the Company, and to provide them with incentives to pursue the long-term profitability and success of the Company.
II. Definitions
(a) “Award” means a grant pursuant to the Plan in the form of a Stock Appreciation Right, Stock Option, Other Stock-Based Award or Qualified Performance-Based Award.
(b) “Award Agreement” means a written agreement setting forth the terms and conditions of an Award made under the Plan.
(c) “Board” means the Board of Directors of the Corporation.
(d) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and all regulations, interpretations and administrative guidance thereunder.
(e) “Committee” means the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer the Plan.
(f) “Common Stock” means the common stock of the Corporation, par value $0.01, or any other security into which such common stock shall be changed as contemplated by the adjustment provisions of Section X of the Plan.
(g) “Company” means the Corporation together with all of the Subsidiaries.
(h) “Corporation” means Hexcel Corporation, a Delaware corporation.
(i) “Covered Employee” means a Participant who is an executive officer of the Corporation within the meaning of Rule 3b-7 promulgated under the Exchange Act.
(j) “DGCL” means the Delaware General Corporation Law, as in effect from time to time.
(k) “Director” means a member of the Board.
(l) “Effective Date” means the first date that the stockholders of the Corporation approve the Plan in a manner that satisfies the requirements of the DGCL and the rules of the New York Stock Exchange.
(m) “Employee” means an employee of the Company.
(n) “Exchange Act” means the Securities and Exchange Act of 1934, as amended.
(o) “Fair Market Value” means, with respect to a share of Common Stock, as of the applicable date of determination, (i) the closing sales price on the date of determination or, if not so reported for such day, the immediately preceding business day, of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading or (ii) if not so reported, the closing bid price on the date of determination or, if not so reported for such day, on the immediately preceding business day as reported on The NASDAQ Stock Market or (iii) if not so reported, as furnished by any member of the Financial Industry Regulatory Authority, Inc. selected by the Committee. In the event that the price of a share of Common Stock shall not be so reported, the Fair Market Value of a share of Common Stock shall be determined by the Committee in its sole discretion.
(p) “Grant Date” means, with respect to any Award, the date on which the Committee completes the corporate action necessary to create a legally binding obligation on the Corporation constituting the Award, or such future date on which the grant is to be effective as provided by the Committee at the time of the corporate action.
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(q) “ISO” means any Stock Option, or portion thereof, awarded to a Participant pursuant to the Plan that is designated by the Committee as an incentive stock option and also meets the applicable requirements of an incentive stock option pursuant to Section 422 of the Code.
(r) “Other Stock-Based Award” has the meaning assigned to such term in Section VI(b).
(s) “Participant” means an Employee, Director or consultant to whom one or more Awards have been granted pursuant to the Plan that have not been fully settled, cancelled or terminated or that are otherwise are no longer outstanding, such Person’s authorized transferees, and, following the death of such Person, his or her successors, heirs, executors, and administrators, as the case may be.
(t) “Performance-Based Award” means (i) a Qualified Performance-Based Award or (ii) an Other Stock-Based Award subject to performance-based conditions.
(u) “Performance Goals” means objective measures of performance based on one or more criteria established by the Committee that must be met during a Performance Period as a condition to vesting or payment of a Qualified Performance-Based Awardor may be required to be met as a condition to vesting or payment of an Other Stock-Based Award subject to performance-based conditions. Such criteria may relate to the performance of the Corporation, a Subsidiary, any subsection of the Company’s business or any combination thereof and may be expressed as an amount or as an increase or decrease over a specified period or a relative comparison of performance to the performance of a peer group of entities or other external measure, of the selected performance criteria, and shall(or, solely with respect to an Other Stock-Based Award, may)be based on one or more of the following: earnings, cash flow, customer satisfaction, safety, revenues, financial return ratios, market performance, productivity, costs, shareholder return and/or value, operating profits (including earnings before any or all of interest, taxes, depreciation and amortization), net profits, earnings per share, profit returns or margins, stock price and working capital (or elements thereof).In addition to the foregoing, Other Stock-Based Awards may also have performance-based measures not described in this paragraph, but which may be established by the Committee at the time of grant of such Other Stock-Based Award.
In determining attainment of a Performance Goal (A) the Committee shall(or, solely with respect to an Other Stock-Based Award, may)exclude the negative impact of unusual, non-recurring or extraordinary items attributable to (1) acquisitions or dispositions of stock or assets, (2) any changes in accounting standards or treatments that may be required or permitted by the Financial Accounting Standards Board, Public Company Accounting Oversight Board or adopted by the Corporation or the Subsidiaries after the goal is established, (3) restructuring activities, (4) disposal of a segment of a business, (5) discontinued operations, (6) the refinancing or repurchase of bank loans or debt securities, (7) unbudgeted capital expenditures, (8) the issuance or repurchase of equity securities and other changes in the number of outstanding shares, (9) conversion of some or all of convertible securities to common stock and (10) any business interruption event; and (B) the Committee may determineto exclude such other items as it deems appropriate; provided, that with respect to a Qualified Performance Based Award, any exclusion shall be determinedwithin ninety (90) days after the start of a Performance Period [to exclude such other items, each], shall bedetermined according to Generally Accepted Accounting Principles (to the extent applicable) as identified in the Company’s accounts, financial statements, notes thereto, or management discussion and analysis [as may], and shallbe permitted by Section 162(m) of the Codewith respect to a Qualified Performance-Based Award.
(v) “Performance Period” means, (i) with respect to any Qualified Performance-Based Award, the period of time over which attainment of the applicable Performance Goals is measured and (ii) with respect to any Other Stock-Based Award subject to performance-based conditions, the period of time over which attainment of such performance-based conditions is measured. Performance Periods may be overlapping.
(w) “Person” means a “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act, including any “group” within the meaning of Section 13(d)(3) under the Exchange Act.
(x) “Plan” means this Hexcel Corporation 2013 Incentive Stock Plan, as it may be amended from time to time.
(y) “Qualified Performance-Based Award” means an award granted to a Covered Employeeprior to January 1, 2018pursuant to Section VI(c), the payment of which is conditioned upon the attainment of one or more Performance Goals, which is intended to meet the requirements of “qualified performance-based compensation” under Section 162(m) of the Code.
(z) “Securities Act” means the Securities Act of 1933, as amended.
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(aa) “Stock Appreciation Right” means a right granted to a Participant pursuant to Section VI(a) of the Plan to receive an amount of cash, or shares of Common Stock with a Fair Market Value, or both, equal to the increase in the Fair Market Value of a specified number of shares of Common Stock between the Grant Date of the right and the date on which it is exercised.
(bb) “Stock Option” means a right granted pursuant to Section VI(a) of the Plan to purchase a specified number of shares of Common Stock at a specified exercise price per share of Common Stock.
(cc) “Subsidiary” means any “subsidiary” of the Corporation within the meaning of Rule 405 under the Securities Act.
III. Eligibility
All Employees, Directors and consultants of the Company are eligible to be selected by the Committee to receive an Award pursuant to the Plan.
IV. Plan Administration
(a) The Plan shall be administered by the Committee, which shall consist of two or more persons, each of whom qualifies as a “non-employee director” (within the meaning of Rule 16b-3 under Section 16 of the Exchange Act), [an “outside director” within the meaning of Treasury Regulation Section 1.162-27(e)(3) and]as “independent” within the meaning of any applicable stock exchange listing rules or similar regulatory authority[.]and, with respect to Qualified Performance-Based Awards,an “outside director” within the meaning of Treasury Regulation Section 1.162-27(e)(3). The Committee shall periodically make determinations with respect to the participation of Employees, Directors and consultants in the Plan and the terms of Awards, including but not limited to amount, type, vesting schedule, exercise price, term, treatment upon termination of employment or other service relationship of the Participant, form of payment, Performance Goals, performance conditions, and such other terms and conditions as the Committee deems appropriate, in each case which shall be contained in an Award Agreement with respect to the Award;provided,that, Awards that vest based upon the lapse of time shall vest over a period of at least three (3) years, and the Performance Period for Performance-Based Awards shall be at least one (1) year, but, in each case, the Committee may make exceptions for death, disability, new hires, promotions, retirement, change in control, and other special circumstances.
(b) The Committee shall have full discretionary authority to interpret and construe the provisions of the Plan and any Award Agreement and to make determinations pursuant to any Plan provision or Award Agreement. The Committee shall have the authority, in its discretion, to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations related to sub-plans established for the purpose of satisfying applicable foreign laws and/or qualifying for preferred tax treatment under applicable foreign laws. For purposes of clarity, the Committee may exercise all discretion granted to it under the Plan in a non-uniform manner among Participants and all other Persons. All decisions, determinations and interpretations of the Committee pursuant to the Plan shall be final, binding and conclusive on all Participants and all other Persons.
(c) On or after the Grant Date of an Award, the Committee may (i) accelerate the date on which such Award becomes vested, exercisable or transferable, as the case may be, (ii) extend the term of any such Award, including, without limitation, extending the period following a termination of a Participant’s employment or other service relationship during which such Award may remain outstanding, (iii) waive any conditions to the vesting, exercisability or transferability, as the case may be, of such Award, (iv) provide for the payment of dividends or dividend equivalents with respect to such Award or (v) permit the transferability of such Award; provided, that the Committee shall not have any such authority to the extent that the grant of such authority would cause any tax to become due under Section 409A of the Code. Notwithstanding anything herein to the contrary, any repricing of a Stock Option or cash tender by the Corporation for a Stock Option shall require the approval of the stockholders of the Corporation.
(d) The employment of a Participant with the Company shall be deemed to have terminated for all purposes of the Plan if such Participant is employed by or provides services to a Person that is a Subsidiary and such Person ceases to be a Subsidiary, unless the Committee determines otherwise. The Committee may, without limitation and in its discretion, in connection with any such determination, take any action permitted under Section IV(c) upon or after such cessation, subject to such terms and conditions as the Committee shall specify. The employment of a Participant with the Company shall not be deemed to have terminated for any purpose of the Plan if such
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Participant is employed by the Corporation or a Subsidiary, and such Participant’s employment is subsequently transferred among the Corporation and the Subsidiaries, unless and to the extent the Committee specifies otherwise in writing in the Award Agreement or otherwise.
(e) All of the powers and responsibilities of the Committee under the Plan may be delegated by the Committee to any subcommittee thereof. In addition, the Committee may from time to time authorize a subcommittee consisting of one or more Directors (including Directors who are Employees) or Employees to grant Awards, subject to such restrictions and limitations as the Committee may specify and to the requirements of DGCL Section 157.
(f) To the extent, and in the manner, provided by the Corporation’s Certificate of Incorporation, as it may be amended from time to time, each member of the Committee, and each Director to whom any duty or power relating to the administration or interpretation of the Plan has been delegated pursuant to Section IV(e), shall not be liable for, and shall be entitled to indemnification and advancement of expenses in respect of, any action, omission, or determination relating to the Plan. To the extent permitted by applicable law, including without limitation the DGCL, each non-Director Employee to whom any duty or power relating to the administration or interpretation of the Plan has been delegated pursuant to Section IV(e) shall not be liable for, and shall be entitled to indemnification and advancement of expenses in respect of, any action, omission or determination relating to the Plan, in the same manner and to the same extent as the members of the Committee and Directors.
V. Stock Subject to Awards under the Plan, Share Counting Rules and Certain Limitations on Awards
(a) Stock Subject to the Plan.
(i) The capital stock subject to Awards under the Plan shall be shares of authorized but unissued Common Stock and shares of Common Stock held as treasury stock. Subject to adjustment in accordance with the provisions of Section X, and subject to Section V(a)(ii) below, the maximum number of shares of Common Stock that shall be available for grant pursuant to Awards under the Plan shall be [3,805,000]7,105,000in the aggregate.
(ii) The following categories of shares of Common Stock shall again be available for grant pursuant to Awards under the Plan, in addition to shares available for grant under paragraph (a)(i) of this Section V: (A) shares related to Awards that are cancelled, forfeited, paid in cash, expire unexercised or terminate for any reason without the issuance of shares of Common Stock, and the number of shares that are not actually paid pursuant to Performance-Based Awards that are earned at less than their maximum performance levels and (B) shares related to awards granted under the Board of Directors of Hexcel Corporation 2003 Incentive Stock Plan, As Amended and Restated May 7, 2009 (the “2003 Plan”), that are cancelled, forfeited, paid in cash, expire unexercised or terminate for any reason without the issuance of shares of Common Stock, and the number of shares that are not actually paid pursuant to performance-based awards granted under the 2003 Plan that are earned at less than their maximum performance levels. The following categories of shares of Common Stock shall not be available for grant pursuant to Awards under the Plan: (1) shares tendered or withheld in payment of the exercise price of Stock Options, (2) sharestendered orwithheld [by the Corporation]to satisfy a Participant’s tax withholding obligation,and (3) shares repurchased by the Corporation using the proceeds from the exercise of Stock Options.In addition, the exercise or settlement of Stock Appreciation Rights shall reduce the shares of Common Stock available under the Plan by the total number of shares to which the exercise or settlement of the Stock Appreciation Rights relates, not just the net amount of shares actually issued upon exercise or settlement.
(iii) Subject to adjustment in accordance with the provisions of Section X, the maximum number of shares of Common Stock that may be subject to Awards granted under the Plan that are intended to be ISOs shall not exceed 400,000 shares of Common Stock in the aggregate.
(iv) No more than fifty percent (50%) of the shares of Common Stock available for grant pursuant to Awards under the Plan shall be granted pursuant to Awards other than Stock Options and Stock Appreciation Rights. For purposes of this limitation only, with respect to a Performance-Based Award, the number of shares of Common Stock deemed to be granted shall be that number of shares that would ultimately be issued if the target level of the applicable performance condition or Performance Goal is achieved.
(b) Assumption, Replacement, Conversion and Adjustment.In the context of a corporate acquisition or merger, the Committee may grant Awards pursuant to the Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity-based awards of an entity other than the Corporation. Unless otherwise required by the listing rules of any securities exchange on which shares of Common Stock are traded, Common Stock covered by Awards granted pursuant to this Section V(b) shall not count against the number of shares
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available for issuance pursuant to Section V(a).
(c) Individual Award Limits.Subject to adjustment as provided in Section X:
(i) the maximum number of shares of Common Stock that may be covered by Stock Options or Stock Appreciation Rights that are granted to any Covered Employee in any calendar year is equal to the maximum number of shares specified in Section V(a);
(ii) the maximum number of shares of Common Stock that may be covered by Qualified Performance-Based Awards that are granted to any Covered Employee in any calendar year is equal to 345,000 shares; and
(iii) the maximum number of shares of Common Stock that may be covered by Awards that are granted to any Director who is not an Employee in any calendar year is equal to 20,000 shares.
VI. Awards Under The Plan
The Committee may from time to time grant Awards to Participants, subject to the following terms and conditions:
(a) Stock Options and Stock Appreciation Rights.
(i) Terms and Conditions. The exercise price per share of Common Stock covered by any Stock Option or Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the Grant Date of the Stock Option or Stock Appreciation Right. Each Stock Option and Stock Appreciation Right shall become vested and exercisable on such date or dates, during such period and for such number of shares of Common Stock as shall be determined by the Committee on or after the Grant Date of such Stock Option or Stock Appreciation Right and set forth in the applicable Award Agreement;provided, however, that no Stock Option or Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the Grant Date of such Stock Option or Stock Appreciation Right; and, provided, further, that each Stock Option and Stock Appreciation Right shall be subject to earlier termination, expiration or cancellation as provided in the Plan or in the applicable Award Agreement. Each Stock Option and Stock Appreciation Right may be exercised in whole or in part. The partial exercise of a Stock Option or Stock Appreciation Right shall have no impact on the remaining portion thereof. A Stock Option or Stock Appreciation Right shall be exercised by such methods and procedures as the Committee determines from time to time. The exercise price of shares of Common Stock purchased upon exercise of Stock Options may be paid in any manner determined by the Committee from time to time, including without limitation through net physical settlement or other method of cashless exercise.
(ii) Additional Terms for ISOs. Each Stock Option that is intended to qualify as an ISO shall be designated as such in the applicable Award Agreement, and if the applicable Award Agreement does not include any such designation, the Stock Option shall be deemed to be a non-qualified Stock Option. ISOs may only be granted to Persons who are Employees. The aggregate Fair Market Value (determined as of the Grant Date of the ISOs) of the number of shares of Common Stock with respect to which ISOs are exercisable for the first time by any Participant during any calendar year under all plans of the Company shall not exceed $100,000, or such other maximum amount as is then applicable under Section 422 of the Code. Any Stock Option or a portion thereof that is designated as an ISO that for any reason fails to meet the requirements of an ISO shall be treated hereunder as a non-qualified Stock Option. No ISO may be granted to a Person who, at the time of the proposed grant, owns (or is deemed to own under the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of common stock of the Company unless (i) the exercise price per share of Common Stock subject to such ISO is at least one hundred ten percent (110%) of the Fair Market Value of a share of Common Stock at the time such ISO is granted and (ii) such ISO is not exercisable after the expiration of five (5) years from its Grant Date.
(b) Other Stock-Based Awards.The Committee may grant equity-based or equity-related awards other than Stock Options, Stock Appreciation Rights or Qualified Performance-Based Awards in such amounts and subject to such terms and conditions as the Committee shall determine (each such award an “Other Stock-Based Award”). Without limiting the generality of the preceding sentence, each such Other Stock-Based Award may (a) involve the transfer of actual shares of Common Stock to Participants, either at the time of grant or thereafter, or payment in cash or otherwise of amounts based on the value of shares of Common Stock, (b) be subject to performance-based and/or service-based conditions, (c) be in the form of phantom stock, restricted stock units, deferred share units or share-denominated performance units and (d) be designed to comply with applicable laws of jurisdictions other than the United States; provided, that each Other Stock-Based Award shall be denominated in, or shall have a value determined by reference to, a number of shares of Common Stock that is specified at the time of the grant of such award.
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(c) Qualified Performance-Based Awards. A Qualified Performance-Based Award shall be denominated in, or shall have a value determined by reference to, a number of shares of Common Stock that is specified at the time of the grant of such award. The amount payable with respect to any Qualified Performance-Based Award shall be determined in any manner permitted by Section 162(m) of the Code. Unless otherwise specified in the Award Agreement for a Qualified Performance-Based Award, the Committee may, in its discretion, reduce or eliminate the amount payable to any Participant with respect to the Qualified Performance-Based Award, based on such factors as the Committee may deem relevant, but the Committee may not increase any such amount above the amount established in accordance with the objective level of achievement of the applicable Performance Goals. For purposes of clarity, the Committee may exercise the discretion provided by the foregoing sentence in a non-uniform manner among Participants. Within ninety (90) days after the beginning of a Performance Period with respect to any Qualified Performance-Based Award, and in any case before twenty-five percent (25%) of the Performance Period has elapsed, the Committee shall establish the Performance Goals for such Performance Period. In addition, the Committee may, subject to the terms of the Plan, amend previously granted Qualified Performance-Based Awards in a way that disqualifies them as “qualified performance-based compensation” under Section 162(m) of the Code.
VII. Award Agreements
Each Award under the Plan shall be evidenced by an Award Agreement setting forth the terms and conditions of the Award.
VIII. Other Terms and Conditions
(a) Transferability; Transfers Upon Death. Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of a Participant, only by the Participant;provided,however, that the Committee may at any time permit in its discretion Awards to be sold, pledged, assigned, hypothecated, transferred, or disposed of, on a general or specific basis, subject to such conditions and limitations as the Committee may determine. Upon the death of a Participant, outstanding Awards granted to such Participant may be exercised by the Participant’s designated authorized person or permitted transferee, provided that such authorized person or permitted transferee has been designated prior to the Participant’s death. Each such designation shall revoke all prior designations by the Participant and shall be effective only if given in a form and manner acceptable to the Committee. In the absence of any such effective designation, such Awards may be exercised only by the executors or administrators of the Participant’s estate or by any person or persons who shall have acquired such right to exercise by will or by the laws of descent and distribution. No transfer of any Award or the right to exercise any Award, whether by will, the laws of descent and distribution, or to any permitted transferee or authorized person, shall be effective to bind the Corporation unless the Committee shall have been furnished with (i) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (ii) an agreement by the transferee to comply with all the terms and conditions of the Award that are or would have been applicable to the Participant and to be bound by the acknowledgements made by the Participant in connection with the grant of the Award.
(b) Termination of Employment or Other Relationship.The Committee shall determine the consequences with respect to each Award in the event of the retirement, disability, death or other termination of a Participant’s employment or other relationship with the Company.
(c) No Obligation to Exercise.The grant of an Award shall impose no obligation upon the Participant to exercise the Award.
(d) Rights as a Stockholder.A Participant shall have no rights as a stockholder with respect to shares of Common Stock covered by an Award until the date that such shares are issued on the books and records of the Corporation. For the avoidance of doubt, for purposes of the foregoing sentence the right to receive dividend equivalents with respect to an Award shall not be considered a right as a stockholder with respect to the shares of Common Stock covered by such Award.
(e) Dividend Equivalents/Dividends.In the event that the Committee provides for the accrual ofdividends ordividend equivalents with respect to an Award, suchdividends ordividend equivalents shall be subject to the same terms and conditions as, and shall in no event be paid prior to the vesting of, the Award to which they relate.
B-6 | HEXCEL CORPORATION | 2019 Proxy Statement |
(f) Withholding. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment.
(g) Securities Matters.Notwithstanding anything to the contrary herein, the Corporation shall not be obligated to cause to be issued any shares of Common Stock pursuant to the Plan, including upon the exercise of any Stock Option granted hereunder, unless and until the Corporation is advised by its counsel that the issuance of such shares is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Common Stock are traded. The Committee may require, as a condition to the issuance of shares of Common Stock pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements and representations, and that any certificates representing such shares bear such legends, as the Committee deems necessary or desirable. The Corporation may, in its sole discretion, defer the effectiveness of an exercise of a Stock Option hereunder or the issuance of shares of Common Stock pursuant to any Award pending or to ensure compliance under federal, state, local or foreign securities laws. The Corporation shall inform the Participant in writing of its decision to defer the effectiveness of the exercise of a Stock Option or the issuance of shares of Common Stock pursuant to any Award. During the period that the effectiveness of the exercise of a Stock Option has been deferred, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto. Notwithstanding the foregoing, the Corporation shall be under no obligation to effect the registration pursuant to the Securities Act of any shares of Common Stock to be issued hereunder or to effect similar compliance under any state, local or foreign laws.
(h) Expenses and Receipts.The expenses of the Plan shall be paid by the Company. Any proceeds received by the Corporation in connection with any Award will be used for general corporate purposes.
IX. Termination, Modification and Amendments
(a) The Committee may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable; provided, however, that no amendments to the Plan which require stockholder approval under applicable law, rule, regulation or stock exchange listing requirement shall become effective unless the same shall be approved by the requisite vote of the Corporation’s stockholders.
(b) No termination, modification or amendment of the Plan may adversely affect the rights conferred by a previously granted Award without the consent of the recipient thereof.
X. Adjustment Upon Certain Changes
Subject to any action by the stockholders of the Corporation required by law, applicable tax rules or the rules of any exchange on which shares of Common Stock (or any other common stock of the Corporation) are listed for trading:
(a) Shares Available for Grants.In the event of any change in the number or type of shares of Common Stock (or any other common stock of the Corporation) outstanding by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, or any change in the type and number of shares of Common Stock (or any other common stock of the Corporation) outstanding by reason of any other event or transaction, the Committee shall make equitable adjustments in the type of shares and in the limitations on the number of shares with respect to which the Committee may grant Awards as described in Section V.
(b) Increase or Decrease in Issued Shares Without Consideration.In the event of any increase or decrease in the number or type of issued shares of Common Stock (or any common stock of the Corporation) resulting from a subdivision or consolidation of shares of Common Stock (or any other common stock of the Corporation) or the payment of a stock dividend (but only on the shares of Common Stock or other common stock of the Corporation), or any other increase or decrease in the number of such shares effected without receipt or payment of consideration by the Company, the Committee shall equitably adjust the type or number of shares subject to each outstanding Award and the exercise price per share, if any, of shares subject to each such Award[.]; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. Any adjustments to outstanding Awards shall be consistent with Section 409A or 424 of the Code, to the extent applicable. Any adjustments determined by the Committee shall be final, binding and conclusive.
HEXCEL CORPORATION | 2019 Proxy Statement | B-7 |
(c) Certain Mergers.In the event of any merger, consolidation or similar transaction as a result of which the holders of shares of Common Stock receive consideration consisting exclusively of securities of the surviving corporation in such transaction, the Committee shall appropriately adjust each Award outstanding on the date of such merger or consolidation so that it pertains and applies to the securities which a holder of the number of shares of Common Stock subject to such Award would have received in such merger or consolidation.
(d) Certain Other Transactions.In the event of (i) a dissolution or liquidation of the Corporation, (ii) a sale of all or substantially all of the Company’s assets (on a consolidated basis) or (iii) a merger, consolidation or similar transaction involving the Corporation in which the holders of shares of Common Stock receive securities and/or other property, including cash, other than shares of the surviving corporation in such transaction, the Committee shall, in its sole discretion, have the power to:
(A) cancel, effective immediately prior to the occurrence of such event, each Award (whether or not then exercisable or vested), and, in full consideration of such cancellation, pay to the Participant to whom such Award was granted an amount in cash, for each share of Common Stock subject to such Award, equal to the value, as determined by the Committee, of such share of Common Stock, provided that with respect to the shares of Common Stock subject to any outstanding Stock Option or Stock Appreciation Right such value shall be equal to the excess of (1) the value, as determined by the Committee, of the property (including cash) received by the holder of a share of Common Stock as a result of such event over (2) the exercise price of a share of Common Stock subject to such Stock Option or Stock Appreciation Right, provided that if the per share value of Common Stock equals or is less than the per share exercise price of a share of Common Stock subject to such Stock Option or Stock Appreciation Right, the Company shall not be required to make any payment to the Participant upon surrender of the Stock Option or Stock Appreciation Right; or
(B) provide for the exchange of each Award (whether or not then exercisable or vested) for an Award with respect to some or all of the property which a holder of the number of shares of Common Stock subject to such Award would have received in such transaction, and, incident thereto, make an equitable adjustment as determined by the Committee in the exercise price per share, if any, of stock subject to the Award, or the number of shares or amount of property subject to the Award or provide for a payment (in cash or other property) to the Participant to whom such Award was granted in partial consideration for the exchange of the Award.
(e) Other Changes.In the event of any change in the capitalization of the Corporation or corporate change other than those specifically referred to in subsections (b), (c) or (d) of this Section X, including without limitation, any extraordinary cash dividend, spin-off, split-off, sale of a Subsidiary or business unit, or similar transaction, the Committee [may]shall make suchequitable adjustments in the issuer, number and type of shares subject to Awards outstanding on the date on which such change occurs, such as, for example, a substitution of Awards, and in such other terms of such Award as the Committee may consider appropriate; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. Any adjustments to outstanding Awards shall be consistent with Section 409A or 424 of the Code, to the extent applicable. Any adjustments determined by the Committee shall be final, binding and conclusive.
(f) Committee Discretion; No Other Rights.The Committee shall exercise the discretion granted to it pursuant to this Section X in a manner necessary to preserve the intended benefits of the Plan for the Corporation and the Participants. Except as expressly provided in the Plan, no Participant or other Person shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger or consolidation of the Corporation or any other corporation. Except as expressly provided in the Plan, no issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares or amount of other property subject to, or the terms related to, any Award.
(g) Construction.Nothing in clauses (c), (d) or (e) of this Section X shall be deemed to supersede any provision of an Award that provides for accelerated vesting, termination, or other consequence in connection with any event or change to which such clauses apply.
(h) Savings Clause.No provision of this Section X shall be given effect to the extent that such provision would cause any tax to become due under Section 409A of the Code.
B-8 | HEXCEL CORPORATION | 2019 Proxy Statement |
XI. No Special Employment Rights
No Person shall have any claim or right pursuant to this Plan to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or in any other relationship with, the Corporation or a Subsidiary. The Corporation and each Subsidiary expressly reserves the right at any time to terminate a Participant’s employment or other service relationship and to increase or decrease the compensation of a Participant from the rate in existence at the time of grant of any Award.
XII. Governing Law
To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the laws of the State of Delaware without regard to its principles of conflicts of law.
XIII. Savings Clauses
(a) In General.The Plan is intended to comply in all aspects with applicable laws and regulations. In case any one or more of the provisions of the Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit the Plan to be construed in compliance with all applicable laws so as to foster the intent of the Plan.
(b) Section 409A of the Code.
(i) To the extent applicable, it is intended that the Plan and the Awards granted hereunder comply with, or be exempt from, the requirements of Section 409A of the Code and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. Accordingly, to the maximum extent permitted, the Plan and the Awards granted hereunder shall be interpreted and administered to be in compliance therewith or exempt therefrom and if any provision of the Plan or any term or condition of any Award would frustrate or conflict with this intent, then the provision, term or condition will be interpreted and deemed amended so as to avoid the frustration or conflict.
(ii) Notwithstanding anything herein or in any Award Agreement to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan to a Participant during the six-month period immediately following the Participant’s “separation from service” (within the meaning of Section 409A of the Code) shall instead be paid on the first business day after the date that is six (6) months following the Participant’s separation from service (or, if earlier than the end of such six-month period, the first business day after the date of the Participant’s death).Notwithstanding anything in this Plan or any Award Agreement to the contrary, each Participant shall be solely responsible for the tax consequences of Awards under this Plan, and in no event shall the Company have any responsibility or liability if any Award does not meet the applicable requirements of Section 409A of the Code. Although the Corporation intends to administer the Plan to prevent taxation under Section 409A of the Code, the Company does not represent nor warrant that the Plan or any Award complies with any provision of federal, state, local or other tax law.
XIV. Effective Date and Termination
The Plan shall be effective on the Effective Date. The Plan shall terminate on the tenth (10th) anniversary of the date of the latest stockholder approval of the Plan, including without limitation any stockholder approval of an amendment to the Plan to increase the number of shares of Common Stock that may be granted hereunder. No Awards shall be granted after the termination of the Plan, but all Awards outstanding under the Plan at the time of termination shall remain outstanding pursuant to the terms thereof.
Following the Effective Date, no further awards will be granted under the 2003 Plan. For purposes of clarity, shares of Common Stock related to all awards granted under the 2003 Plan prior to the Effective Date are acknowledged and affirmed as having been properly authorized and validly granted under the 2003 Plan.
HEXCEL CORPORATION | 2019 Proxy Statement | B-9 |
HEXCEL CORPORATION
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
To be held on May 9, 2019
This Proxy is Solicited by the Board of Directors of Hexcel Corporation
P R O X Y | The undersigned stockholder of Hexcel Corporation (Hexcel) hereby appoints Nick L. Stanage, |
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(Continued and to be signed on the reverse side)
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▲ TO VOTE BY MAIL, PLEASE DETACH HERE ~▲
ANNUAL MEETING OF STOCKHOLDERS OF
HEXCEL CORPORATION
May 4, 20179, 2019
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The Notice of Meeting, proxy statement, annual report to stockholders and proxy card
related materials
are available at http://phx.corporate-ir.net/phoenix.zhtml?c=75598&p=proxyinvestors.hexcel.com/financials/proxy-materials
Please sign, date and mail
your proxy card in the
envelope provided as soon as possible.
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PLEASE MARK
| THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF ALL NOMINEES FOR DIRECTOR AND “FOR” PROPOSALS |
1. | ||||||
FOR | ABSTAIN | |||||
Nick L. Stanage | o | o | ||||
Joel S. Beckman | o | o | ||||
Lynn Brubaker | o | o | ||||
Jeffrey C. Campbell | o | o | ||||
Cynthia M. Egnotovich | o | |||||
Thomas A. Gendron | o | o | ||||
Jeffrey A. Graves | o | o | ||||
Guy C. Hachey | o | o | ||||
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FOR | AGAINST | ABSTAIN | ||||||||
2. | Advisory vote to approve | o | o | |||||||
3. | Amendment to the Hexcel Corporation 2013 Incentive Stock Plan | o | o | |||||||
4. | Ratification of Ernst & Young LLP as Independent Registered Public Accounting Firm for 2019 | o | o | o | ||||||
5. | To transact such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof |
This proxy, when properly executed, will be voted in the manner directed herein. If no such directions given, this proxy will be voted in accordance with the Board of Directors’ recommendations, and in the discretion of the proxy holder on any other matter that may properly come before the meeting.
Meeting Attendance
Mark the box to the right if you plan to attend the Annual Meeting. o
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To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. |
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Date: _____________________________________________, 2019 | ||||||||||
Signature of Stockholder | ||||||||||
Signature of Stockholder | ||||||||||
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
~▲ TO VOTE BY MAIL, PLEASE DETACH HERE~ ▲