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 | Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 |
Notice of
Two Stamford PlazaAnnual Meeting of
281 Tresser BoulevardStockholders
Stamford, Connecticut 06901-3238
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on
May 4, 20173, 2018
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, 20173, 2018 at 10:30 a.m. for the following matters:purposes:
1. To elect eleven directors to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified;
2. To vote on a proposal to approve, on an advisory basis, the company’s 2017 executive compensation;
3. To vote on a proposal to ratify the appointment of Ernst & Young LLP as independent registered public accounting firm for 2018; and
4. To transact such other business as may properly come before the meeting or any adjournments or postponements thereof.
Stockholders of record at the close of business on March 9, 20172018 will be entitled to vote at the meeting and any adjournments or postponements. A listpostponements 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.
| By order of the | ||
| Directors | ||
Gail E. Lehman Executive Vice President, General Counsel and Secretary | ||
Dated: March 17, 201716, 2018
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
PRE-ADDRESSED, POSTAGE-PAID, RETURN ENVELOPE.
IMPORTANT NOTICE REGARDING THE AVAILABILITY
OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON MAY 3, 2018
The proxy statement, annual report to security holders and related materials are available athttp://phx.corporate-ir.netlphoenix.zhtml?c=75598&p=proxy.
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Matters of Business, Votes Needed and Recommendations of the Board of Directors | 2 | |||
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | ||||
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PROPOSAL | 56 | |||
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PROPOSAL 3—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||||
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ii
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 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”) to be held on May 4, 2017.3, 2018. This proxy statement and the accompanying proxy/voting instructionproxy card are first being distributed or made available to stockholders on or about March 17, 2017.16, 2018.
You will be eligible to vote your shares of common stock at the AnnualThe Meeting if you were a stockholder of record 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 at the meeting.
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 shares that are represented by effective proxies that we receive in time to be voted shall be voted at the Annual Meeting. If you direct how your votes shall be cast, shares will be voted in accordance with your directions. If you return a signed proxy and do not otherwise instruct 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,
| To be held on: | May 3, 2018 | |
| Place: | Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901-3238 | |
| Record Date: | You will be eligible to vote your shares of common stock at the Annual Meeting if you were a stockholder of record at the close of business on March 9, 2018. As of that date, 89,650,530 shares of common stock were issued and outstanding. The holders of 44,825,266 shares will constitute a quorum at the meeting. | |
| Voting: | 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 shares that are represented by effective proxies that we receive in time to be voted shall be voted at the Annual Meeting. If you direct how your votes shall be cast, shares will be voted in accordance with your directions. If you return a signed proxy and do not otherwise instruct 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, on an advisory basis, of the company’s 2017 executive compensation, |
| ◾ | in favor of the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2018, and |
| ◾ | in the discretion of the proxy holders on any other matters that may come before the Annual Meeting. |
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 herbroker holding shares throughfor a bank or brokerage firmbeneficial owner does not instruct that bank or brokerage firm how to vote the shares and, ason a result,particular proposal because the broker is preventeddoes not have discretionary voting power with respect to that proposal and has not received voting instructions from voting the shares held in the stockholder’s account on certain proposals.beneficial owner. Under applicable NYSENew York Stock Exchange (“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 discretionbrokers are not permitted to vote on “routine” matters only. Of the matters to be votedelection of directors or on as described in this proxy statement, only the ratification ofadvisory vote on the selectioncompensation of our independent registered public accounting firm is considered “routine” andnamed executive officers; therefore, eligible to be voted onif your shares are held by your bank or brokerage firm withouta broker, you must provide voting instructions from you. Ifif you sign and return a voting instruction card towant your broker your shares will be voted as you instructto vote 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.these matters.
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,$10,000, plus reasonableout-of-pocket expenses. Our employees may solicit
proxies on behalf of our board through the mail, in person, and by telecommunications.telecommunications, without additional compensation. We will request that brokers, banks and other 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 reasonablethe expenses they incur to do this.of doing so.
If you give a proxy, you may revoke it at any time prior to the Annual Meeting by:
| ◾ | mailing a revocation to our Corporate Secretary at Hexcel Corporation, 281 Tresser Boulevard, Stamford, Connecticut 06901, with a later date than the date of any proxy you previously provided, so long as the revocation |
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;
Hexcel Corporation | 2018 Proxy Statement | 1 |
| PROXY STATEMENT |
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by filing a written revocation at the Annual Meeting with Ms. Lehman; or
| ◾ | 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; |
| ◾ | filing a written revocation at the Annual Meeting with our Corporate Secretary; or |
by casting a ballot at the meeting.
| ◾ | 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 in this proxy statement under “How to Vote Your Shares—Employee Stockholders” in this proxy statement..
Matters of Business, Votes NeededRequired and Recommendations of the Board of Directors
Proposal 1—Election
Each owner of Directors
Each outstanding share of our stockrecord on the record date is entitled to one vote for as many separate nominees as there are directors to be elected. There are ten directors to be elected.each share of common stock held. If a quorum is present, stockholders will vote on the following proposals.
Proposal 1—Election of Directors
Stockholders will elect eleven directors. 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 and Catherine A. Suever for election to the board. EachOther than Ms. Suever, each of these teneleven nominees is currently a director of the company. OnceTo be elected, a quorum is present,director nominee must receive the affirmative vote of 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 ofin the nominees for director.election at the Annual Meeting. 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 advisory vote on the company’s 20162017 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.Meeting. In determining whether the proposal to approve 20162017 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 approvingproposal to approve the company’s 20162017 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 statementsas our independent registered public accounting firm for 20172018 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 committeefirm and is not bound by the outcome of this vote but,vote. However, 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 2017.2018.
Voting by proxy
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. As noted above, if you do not provide instructions the shares represented by your proxy will be voted for the eleven nominees named on the proxy card; for approval, on an advisory basis, of the company’s 2017 executive compensation, and for ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2018.
Voting shares you hold through a nominee
If you hold shares through someone else, such as a stockbroker, bank or nominee, you willshould receive material from that firm asking you for instructions on how you want them to vote your shares. You can complete that firm’s voting instruction form and return it as requested by the firm. If the firm offers Internet or telephone voting, the voting instruction form willshould contain instructions on how to vote using those methods.
2 | Hexcel Corporation | 2018 Proxy Statement |
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| PROXY STATEMENT |
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If you plan to attend the meeting
Please note that attendanceIn accordance with our security procedures, admission to the Annual Meeting will be limitedrestricted to stockholdersholders of record and beneficial owners of Hexcel stock as of the record date. Admission will be on a first-come, first-served basis. If you attend the Annual Meeting, youdate, March 9, 2018. You will need to presentprovide valid picturegovernment-issued photo identification, such as a driver’s license or passport.passport, to gain entry to the Annual Meeting. Meeting attendance requires advance registration. 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 hold your shares through someone else, such as a stockbroker, bank or other nominee,do not have an admission ticket, you will needmust present proof of ownership in order to show a brokerage statement or account statement reflecting your stock ownership as ofbe admitted to the record date.Annual Meeting. 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 holder of record of Hexcel stock, you should indicate that you plan to attend the Annual Meeting when submitting your proxy by checking the box (Yes) in the bottom left corner of your 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 are a registered stockholder, you may vote your shares in person by ballot at the Annual Meeting.
If you hold your shares inthrough a stock brokerage account or through astockbroker, bank or other nominee, you will notalso need an admission ticket or proof of ownership to be ableadmitted to the meeting. A recent brokerage statement or letter from the bank, broker or other nominee are examples of proof of ownership. If you want to vote in person at the Annual Meeting unlessyour Hexcel stock held by a bank, broker or other nominee, you have previously requested and obtainedmust bring a “legal proxy”signed proxy from your broker, bank or other nominee and present it atgiving you the Annual Meeting along with a properly completed ballot.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.
At the Annual Meeting, Morrow Sodali LLC will count the votes. Its officers or employees will serve as inspectors of election.
PROPOSAL 1—ELECTION OF DIRECTORS
Hexcel Corporation | 2018 Proxy Statement | 3 |
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Election of Directors |
At the 2017 annual meeting, ten2018 Annual Meeting, eleven directors will be elected to hold office until the 2018 annual meeting2019 Annual Meeting and until their successors are duly elected and qualified. AllOther than Ms. Suever, 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 teneleven nominees recommended by the board, unless the proxy is marked against any nominee. Ifindicates otherwise. In the unlikely event that any nominee becomes unable or unwilling to stand for any reason is unable to serve,election, the shares of common stock represented by theyour proxy card may, at the board’s discretion,will be voted for an alternate person thatone or more substitute nominees designated by the board, nominates. We are not awareor the board may decide to reduce the number 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.directors.
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.elections (a situation in which the number of nominees exceeds the number of directors to be elected, which is not the case with respect to the election of directors at the 2018 Annual Meeting). Under this standard, 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 notre-elected, Delaware law provides that the director will continue to serve on the board. However, each incumbent director nominee standing for reelection 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) thea plurality voting standard will apply.
4 | Hexcel Corporation | 2018 Proxy Statement |
| PROPOSAL 1 —ELECTION OF DIRECTORS | |
Information Regarding the Directors
All but one of our current directorsnominees, other than Ms. Suever, have been nominated forre-election to the board. Dr. David HillMs. Suever has not been nominated forre-election because he has reached the age of 70 and is no longer eligible to servepreviously served on the board. AsTo accommodate the proposed election of Ms. Suever, as of the date of the Annual Meeting, and if all nominees are elected, the number of directors will be reducedincreased to ten.eleven. 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
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Chairman, President and Chief Executive Officer Age: 59 Director Since: 2013 |
Mr. Stanage became a director and President and Chief Executive Officer on August 1, 2013 and also our became Chairman of the Board on January 1, 2014. He has served as our President since November 2009, and also as 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 group 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: 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 theour company’s business operations, growth opportunities and challenges, andas well as its customer and product base during his seven-year tenure as President, Chief Operating Officer and in his current role as Chairman, Chief Executive Officer and President. His over 20 years’
years of management and operations experience at Dana Corporation and Honeywell provide him with criticalsubstantial expertise in the management, financial and operational requirements of a global manufacturing company.
JOEL S. BECKMAN, 61, director since 2003
Position, Principal Occupation, Business Experience and Directorships:
JOEL S. BECKMAN |
Managing Partner, Greenbriar Equity Group, LLC Age: 62 Director Since: 2003 Committees: Nominating and Corporate Governance, Finance (Chair) |
Mr. Beckman is a 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 aan investment 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 toHis experience in the transportation sector, together with his extensive experience in private equity ledrenders him well-qualified to his appointmentserve as chair of our finance committee, a position he has held since January 2009, and has made him a key contributor to refinancing and capital structure discussions since joining the board.discussions.
Hexcel Corporation | 2018 Proxy Statement 5 LYNN BRUBAKER, 59, director since 2005
Position, Principal Occupation, Business Experience and Directorships:
| PROPOSAL 1 —ELECTION OF DIRECTORS | |
LYNN BRUBAKER |
Retired, Vice President/General Manager Honeywell International, Inc. Age: 60 Director Since: 2005 Committees: Audit, Nominating and Corporate Governance (Chair) |
Ms. Brubaker retired in 2005 from Honeywell International, Inc. (which acquired AlliedSignal in 1999), where she had 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. Prior to joining Allied Signal, 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, 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, CSR and nominating and corporate governance committees. Ms. Brubaker also currently serves on the board of a private aerospace company.
Key Attributes, Experience and Skills:
Ms. Brubaker is a seasoned executive withhas over thirty-eight years’38 years of experience in the aviation and aerospace industries, as well as over fifteen15 years’ experience serving on variousseveral boards of directors, and 12 years advising international, high technology and multi-industry companies. HerIn particular, her extensive experience in a wide variety of capacities with the commercial aerospace, defense and space industries in a wide variety of roles, makesenables her ato provide valuable contributorinsights to the board of Hexcel. Ms. Brubaker’s aerospace experience runs the gamut from operatorwith respect to original equipment manufacturer to aftermarket parts and service provider. Herthese industries. In addition, her ongoing aerospace industry involvement and relationships enable her to provide the board with additionalimportant insights as to customer feedback independent of management. In addition, Ms. Brubaker has used herBrubaker’s expertise in sales and marketing management enables her to assessprovide valuable observations with regard to our sales and advise our marketing and sales teams.organizations. 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 leadchair our nominating and corporate governance committee.
JEFFREY C. CAMPBELL, 56, directorcommittee, a position she has held since 2003January 2014.
Position, Principal Occupation, Business Experience and Directorships:
JEFFREY C. CAMPBELL |
Executive Vice President, Chief Financial Officer American Express Company Age: 57 Director Since: 2003 Committees: Audit (Chair) |
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, 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 and Skills:
As a result of Mr. Campbell’s extensive experience in finance and accounting, including his current role as CFOChief Financial Officer of American Express, a $34 billion global services company, and his prior role as CFOChief Financial Officer of McKesson, a $100 billion healthcare services company, as well as over fifteen years in executive and management positions in the aerospacecommercial aviation industry, (American Airlines), he bringsenable him to provide significant financial acumenexpertise to the board, providing valuable expertise and guidanceparticularly in areas such as compliance, risk management, financing, investor relations and systems solutions. Mr. Campbell’s breadthsolutions, 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 ofrenders him well-qualified to serve as chair of the audit committee.committee, a position he has held since May 2008.
6 | Hexcel Corporation | 2018 Proxy Statement |
| PROPOSAL 1 —ELECTION OF DIRECTORS | |
CYNTHIA M. EGNOTOVICH
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Former President, Aerospace Systems Customer Service United Technologies Corporation Age: 60 Director Since: 2015 Committees: Audit |
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) 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 Electronic Systems and Segment President 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.Company, which was subsequently renamed Welbilt, Inc. in 2017. Ms. Egnotovich continues to be the chairwoman of Welbilt’s board and also serves as chair of its compensation committee.
Key Attributes, Experience and Skills:
Ms. Egnotovich brings to the Hexcel board almost thirty years’30 years of experience in the aerospace industry, much of which was ininvolved 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 is ableprovides to offer the board a differentuseful manufacturing perspective, based on her experience as a director of a publicly traded manufacturing company outside of the aerospace industry.
W. KIM FOSTER |
Former Executive Vice President, Chief Financial Officer FMC Corporation Age: 69 Director Since: 2007 (Lead Director) Committees: Compensation, Nominating and Corporate Governance |
W. KIM FOSTER, 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. markets, from 2001 until October 2012. 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 –to 2001; Director, International, Agricultural Products Group from 1996-1998;1996 to 1998; General Manager, Airport Products and Systems Division, 1991-1996;1991 to 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,its Chief Financial Officer, 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 provenenables him to provide valuable in connectioninsights with discussions ofrespect to capital spending and global sourcing. Mr. Foster’s many years of managing a large and geographically dispersed finance organization, his experience as the CFOChief Financial Officer of a publicly-traded company and his tenure as a member of the board of Hexcel led his fellow directorsrenders him well-qualified to appoint himserve as Lead Director, startingand he has served in that capacity since January 2014.
Hexcel Corporation | 2018 Proxy Statement 7 THOMAS A. GENDRON, 56, director since 2010
Position, Principal Occupation, Business Experience and Directorships:
| PROPOSAL 1 —ELECTION OF DIRECTORS | |
THOMAS A. GENDRON |
Chairman, Chief Executive Officer and President Woodward, Inc. Age: 57 Director Since: 2010 Committees: Compensation, Finance (Chair) |
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 management positions at Woodward.
Key Attributes, Experience and Skills:
Mr. Gendron’s experience as presidentPresident and CEOChief Executive Officer of Woodward a NASDAQ-listed company, includes extensive operations and marketing experience in the aerospace and wind power industries.industries, by virtue of Woodward’s global aircraft and wind turbine controls businessbusiness. Mr. Gendron’s experience enables Mr. Gendronhim to provide the board with insight as tovaluable insights regarding the aerospace and wind power industries, and offer guidance on the development ofincluding marketing strategies. In addition, Mr. Gendron’s significant manufacturing management experience makesenables him well-suited to adviseprovide useful observations regarding our operations team.manufacturing operations. His experience in evaluating compensation programs as a CEO ledWoodward’s Chief Executive Officer renders him well-qualified to his appointmentserve as chair of the compensation committee, and he has served in that capacity since May 2016.
JEFFREY A. GRAVES
|
Chief Executive Officer and President MTS Systems Corporation Age: 56 Director Since: 2007 Committees: Nominating and Corporate Governance, Finance |
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 Corporation and Teleflex,FARO Technologies, Inc. Dr. Graves serves on Teleflex’sFARO’s 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.
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. In addition, Dr. Graves’ significant experience with respect 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 businessinternational market development, particularly in China and India, enablingenables him to provide valuable contributions to discussions related to our Asia Pacific strategy, particularlyinsights with respect to industrial markets. Dr. Graves regularly reviews our R&D programsglobal marketing efforts and organizationstrategic initiatives. His research and reports back to the board his findingsdevelopment experience and recommendations. In addition, Dr. Graves has advised on information technology projects based on his past experience withbackground in the implementation of enterprise resource planning systems.systems enables him to provide insights to the board in its assessment of our research and technology programs and information technology.
8 Hexcel Corporation | 2018 Proxy StatementGUY C. HACHEY,61, director since 2014
Position, Principal Occupation, Business Experience and Directorships:
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GUY C. HACHEY |
Former President, Chief Operating Officer Bombardier Aerospace, Inc. Age: 62 Director Since: 2014 Committees: Compensation |
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 intovaluable insights with regard to Hexcel’s aerospace product offerings across the globe. In addition, Mr. Hachey hasHachey’s significant experience in overseeing global automotive manufacturing businesses and is ableenables him to offer aprovide valuable perspective to discussionsperspectives regarding our manufacturing operations global manufacturing footprint, and industrial markets.
DAVID L. PUGH
|
Former Chairman and Chief Executive Officer Applied Industrial Technologies Inc. Age: 69 Director Since: 2006 Committees: Compensation, Nominating and Corporate Governance |
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 wasPreviously, he served as that company’s 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,Earlier, Mr. Pugh was senior vice presidentSenior Vice President of Rockwell Automation and general manager of Rockwell’sRockwell Automation’s Industrial Control Group. Prior to joining Rockwell Automation, Mr. Pugh held various sales, marketing and operations positions at Square D. Co. and Westinghouse Electric Corp. Mr. Pugh is also a member of the board of directors of NN, Inc. and serves on its audit 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 gainedPugh’s extensive operations and sales and marketing experience in large-scale global manufacturing organizations; and extensive experience as a director of public companies. Mr. Pugh’sorganizations, including expertise in factory control systems and equipment maintenance programs, enables him to provide valuable insights regarding our operations management. Moreover, his experience as a chief executive officer and public company director enables him to provide important perspectives to the board with regard to executive compensation.
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CATHERINE A. SUEVER |
Executive Vice President – Finance and Administration and Chief Financial Officer Parker Hannifin Corporation Age: 59 |
Ms. Suever has provided valuable expertiseserved 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 significance thereafter, 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. In addition, 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. She serves on the 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 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 our operations management team. Mr. Pugh brings importantprovide valuable perspectives inregarding communications with the executive compensation area to both the compensation committee and the board, asinvestor community. Ms. Suever was initially recommended by a result of his varied experiences with other public boards.third-party search firm.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTEFOR
ELECTION OF EACH OF THE
NOMINEES FOR DIRECTOR
10 | Hexcel Corporation | 2018 Proxy Statement |
| PROPOSAL 1 —ELECTION OF DIRECTORS | |
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 relationshipstandards, and that members of the audit and compensation committee meet the additional independence requirements of the NYSE applicable to audit committee and compensation committee members. In making the applicable determinations with us other than as a director of Hexcel.respect to Ms. Brubaker, the board considered that she is a director of a private aerospace company that is our customer. In determining that Ms. Brubaker did not have a material relationship with us, and thus was independent, our board considered,After considering, among other things, theour sales to this private aerospace company as a percentage of our total sales, as well asand the fact that Ms. Brubaker is not an employee of thisthe private aerospace company, andthe board concluded that Ms. Brubacker does not have any significanta direct or indirect pecuniarymaterial interest in the transactions, and that our business relationship between uswith the private aircraft company does not impair Ms. Brubaker’s independence. In making the applicable determinations with respect to Mr. Graves, the board considered that he is Chief Executive Officer and this private aerospace company.President of MTS Systems, which is a supplier to Hexcel. After considering, among other things, thede minimis amount of sales by MTS Systems to Hexcel as a percentage of MTS Systems’ total sales, and as a percentage of Hexcel’s total equipment purchases, the board concluded that Mr. Graves does not have a direct or indirect material interest in the transactions and that our business relationship with MTS Systems does not impair Mr. Graves’ independence.
Meetings and Standing Committees of the
Board of Directors
General
During 20162017 there were five meetings of the board, and 2122 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 20162017 attended or participated in at least 75% of the aggregate number of board meetings and applicable committee meetings held during 2016.2017. 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. Our board has also adopted a set of corporate governance guidelines. All committee charters and the corporate governance guidelines can be viewed on the investor relations section 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.
The table below provides information regarding the current membership of each standing board committee and meetingthe number of meetings held during fiscal year 2016:2017:
Name | Audit | Compensation | Nominating and Corporate Governance | Finance | Audit | Compensation | Nominating and Corporate Governance | Finance | ||||||||
Joel S. Beckman | Ö | Chair | ∎ | Chair | ||||||||||||
Lynn Brubaker | Ö | Chair | ∎ | Chair | ||||||||||||
Jeffrey C. Campbell | Chair | Chair | ||||||||||||||
Cynthia M. Egnotovich | Ö | ∎ | ||||||||||||||
W. Kim Foster | Ö | Ö | ∎ | ∎ | ||||||||||||
Thomas A. Gendron | Chair | Ö | Chair | ∎ | ||||||||||||
Jeffrey A. Graves | Ö | Ö | ∎ | ∎ | ||||||||||||
Guy C. Hachey | Ö | ∎ | ||||||||||||||
David C. Hill | Ö | Ö | ||||||||||||||
David L. Pugh | Ö | Ö | ∎ | ∎ | ||||||||||||
Number of Meetings | 8 | 6 | 4 | 3 | 8 | 6 | 4 | 4 | ||||||||
Actions by Written Consent | 1 | — | 1 | 4 | — | — | 1 | 4 | ||||||||
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Audit Committee
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 6359 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 each of Jeffrey C. Campbell and W. Kim Foster is 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 concern should report it to the board as set forth under “Contacting the Board” on page 15. 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.
Finance Committee
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 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 committee evaluates the board’s performance at least annually. In addition, each committee conducts an annual self-evaluation and, wethe committee, in collaboration with the lead director, also conductconducts a peer review of individual directors every other year. The 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 nominating and corporate governance committee believes that each nominee for director should demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the board’s supervision and oversight of our business and affairs.board. The committee also considers the following when selecting candidates for recommendation to the board: broad business knowledge, 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 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 on the consideration of all director candidates, regardless of source, is set forth in the charter of the nominating and corporate governance committee. To have a candidate considered by the committee, a stockholder must submit the recommendation in writing to our 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 |
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
The name, age, business address and residence address of the candidate, a listing of 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
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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
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 |
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
| ◾ | 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 |
A representation that the stockholder intends to appear in person at the annual meeting to nominate the candidate
| ◾ | 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 does not obtain a majority vote in a later election of directors |
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
| ◾ | 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 |
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
| ◾ | 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
| ◾ | 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 |
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 of director candidates were made for thisthe 2018 Annual Meeting.
Compensation Committee
The compensation committee defines the goals ofarticulates our compensation policy and principles, reviews and approves our compensation programs 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, processespolicy 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 Compensation Discussion and Analysis beginning on page 2221 of this proxy statement.
As stated in our 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
Hexcel Corporation | 2018 Proxy Statement | 13 |
| PROPOSAL 1 —ELECTION OF DIRECTORS | |
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 ensure that we maintain the highest standards of corporate governance and effective accountability of the CEO to the board, including the following:
Each of the other directors on the board is independent
| ◾ | Each of the other directors on the board is independent |
The board has named a lead director, whose responsibilities are described in detail below
| ◾ | The board has named a lead director, whose responsibilities are described below |
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
| ◾ | 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 |
The independent directors meet regularly in executive sessions without management
| ◾ | The independent directors meet regularly in executive sessions without management |
The board regularly reviews performance, management development and succession plans for executive positions.
| ◾ | The board regularly reviews performance, management development and succession plans for executive positions |
Our bylawsBylaws dictate that if the chairman of the board is independent, then the chairman will be the lead director or, if the chairman 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. Foster to serve as lead director. Mr. Foster has theIn addition to his authority to call a meeting of the independent directors, in addition toMr. Foster has the responsibilities listed below:
Oversees the flow of information to the board
| ◾ | Oversees the flow of information to the board |
Determines the annual master agenda for board meetings with input from management and other directors
| ◾ | 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
| ◾ | 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
| ◾ | 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
| ◾ | Collaborates with the nominating and corporate governance committee to conduct 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 |
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
| ◾ | 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 of two times a year, but normally do so at every regular board meeting.
The board is responsible for overseeing our risk management. Twice annually, the board discusses enterprise risk management, defining key risk and business continuity indicators and steps taken to reduce identified risks, including risks related to manufacturing, technology and ITinformation technology security. In addition, specific board committees are responsible for overseeing specific types of risk. Our 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 can use to report suspected violations of our Code of Business Conduct. The audit committee also regularly meets in executive sessions 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. The finance committee addresses significant financing matters such as our capital structure, credit facilities, equity and debt issuances, liquidity and insurance programs. 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 last 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 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.
14 | Hexcel Corporation | 2018 Proxy Statement |
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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, CT 06901; facsimile number(203) 358-3972. The corporate secretary will review all communications and forward them to the lead director. The corporate 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 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 Code applies to all of our officers, directors and employees worldwide, including our chief executive officer, chief financial officer and controller. The Code can be viewed on the investor 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. 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 relations section of our website under “Corporate Governance.”
Director Compensation in 20162017
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 2016,2017, the compensation committee performed its annual review of the director compensation program compared with survey data from the National Association of Corporate Directors.Directors (the “NACD”). The review indicated that our directordirectors were compensated below the median of the compensation remained competitive with compensation for other similarly sized firms.level indicated by the NACD survey. The compensation committee had previously concluded it was important that directors be competitively compensated and therefore recommended no changes in 2016that the board approve a $15,000 increase to the annual cash compensation to better align with the median level of director compensation.compensations in the NACD Survey. The recommendation of the committee was adopted by the board, effective July 1, 2017.
AnnualAs of July 1, 2017, annualnon-employee director cash compensation consists of a retainer of $58,000$73,000 (increased from $58,000) plus:
$25,000 for the lead director
| ◾ | $25,000 for the lead director |
$12,500 for the audit committee chair
| ◾ | $10,000 for each member of the audit committee |
$7,500 for the compensation committee chair
| ◾ | $7,500 for each member of the compensation committee |
| ◾ | $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:
$10,000 for each member of the audit committee (including the chair of the committee)
| ◾ | $12,500 for the audit committee chair |
$7,500 for each member of the compensation committee (including the chair of the committee)
| ◾ | $7,500 for the compensation committee chair |
$5,000 for each member of the nominating and corporate governance committee and the finance committee (including the chairs of the committees)
| ◾ | $5,000 for each of the nominating and corporate governance committee and the finance committee chairs |
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 2016
Hexcel Corporation | 2018 Proxy Statement | 15 |
| PROPOSAL 1 —ELECTION OF DIRECTORS | |
2017 was $105,000. The 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 conversiondelivery 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 $1,000 for attendance at anyeach meeting of that committee.attended.
Our stock ownership guidelines, which are described on page 39,38, apply tonon-employee directors as well as executive officers. All of ournon-employee directors are in full compliance with the policy, except for Mr. Hachey and Ms. Egnotovich who were elected to the board in October 2014 and January 2015, respectively.policy.
The table below summarizes the compensation paid by the company tonon-employee directors for the fiscal year ended December 31, 2016.2017.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | ||||||||||||||||||
Joel S. Beckman | 73,000 | 104,999 | 177,999 | 81,500 | 104,988 | 186,488 | ||||||||||||||||||
Lynn Brubaker | 78,000 | 104,999 | 182,999 | 85,500 | 104,988 | 190,488 | ||||||||||||||||||
Jeffrey C. Campbell | 80,500 | 104,999 | 185,499 | 88,000 | 104,988 | 192,988 | ||||||||||||||||||
Cynthia M. Egnotovich | 68,000 | 104,999 | 172,999 | 75,500 | 104,988 | 180,488 | ||||||||||||||||||
W. Kim Foster | 95,500 | 104,999 | 200,499 | 104,647 | 104,988 | 209,635 | ||||||||||||||||||
Thomas A. Gendron | 75,421 | 104,999 | 180,420 | 85,500 | 104,988 | 190,488 | ||||||||||||||||||
Jeffrey A. Graves | 68,000 | 104,999 | 172,999 | 77,147 | 104,988 | 182,135 | ||||||||||||||||||
Guy C. Hachey | 65,500 | 104,999 | 170,499 | 73,000 | 104,988 | 177,988 | ||||||||||||||||||
David C. Hill | 73,000 | 104,999 | 177,999 | 25,050 | 0 | 25,050 | ||||||||||||||||||
David. L. Pugh | 71,360 | 104,999 | 176,359 | 78,000 | 104,988 | 182,988 | ||||||||||||||||||
| (1) | The grant date fair value of each RSU granted to directors on May |
| (2) | As of December 31, |
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| our common stock when the underlying RSUs to which they relate are converted. All RSUs granted prior to the |
16 | Hexcel Corporation | 2018 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.
Name | Age on March 16, 2018 | Executive Officer Since | Position(s) With Hexcel | |||
Nick L. Stanage | 59 | 2009 | Chairman of the Board; Chief Executive Officer; President; Director | |||
Patrick J. Winterlich | 48 | 2017 | Executive Vice President; Chief Financial Officer | |||
Gail E. Lehman | 58 | 2017 | Executive Vice President; General Counsel; Secretary | |||
Robert G. Hennemuth | 62 | 2006 | Executive Vice President; Human Resources and Communications | |||
Thierry Merlot | 57 | 2016 | President – Aerospace, Europe, Middle East and Asia Pacific | |||
Michael Canario | 50 | 2016 | President – Americas, Aerospace & Corporate Business Development | |||
Timothy Swords | 55 | 2016 | President – Industrial | |||
Brett Schneider | 45 | 2018 | President – Global Fibers |
Name | Age on March 17, 2017 | Executive Officer Since | Position(s) With Hexcel | |||||||
Nick L. Stanage | 58 | 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 | |||||||
Robert G. Hennemuth | 61 | 2006 | Executive Vice President, Human Resources | |||||||
Thierry Merlot | 57 | 2016 | President – Aerospace Europe, Middle East, Asia and Asia Pacific | |||||||
Michael Canario | 49 | 2016 | President – Aerospace Americas | |||||||
Timothy Swords | 54 | 2016 | President – Industrial | |||||||
WAYNE C. PENSKY has served asPATRICK J. WINTERLICH was 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. Prior 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.Enterprise Reporting from 2016-2017. Prior to joining Hexcel, Mr. Winterlich served in 1993, Mr. Pensky wasseveral financial capacities at Courtaulds, 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. LEHMAN was 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 Noranda,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. Ms. Lehman was Vice President, General Counsel & Corporate Secretary at both Hawker Beechcraft Corporation (July 2007-August 2009) and Covalence Specialty Materials Corporation. Earlier in her career,Corporation (April2006-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 atvarious position of increasing responsibility in the Law Department of Honeywell International, supporting Treasury and Finance, Honeywell Fluorine Products, Engineered Plastics and Specialty Films, and environmental litigation and regulatory compliance.International.
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 served was 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 AlliedSignal Inc.), 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 MERLOT became our President, Aerospace – EMEA/APEurope, Middle East and Asia Pacific in May 2016. From 2010 to May 2016, he was Vice President and General Manager—Aerospace EMEA/AP. Mr. Merlot joined Ciba-Geigy in 1988, and became an employee of Hexcel upon the merger between Hexcel and Ciba-GeigyCiba’s Composite 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 became our President, Americas, Aerospace & Corporate Business Development in January 2018. Mr. Canario served as our President, Aerospace – Americas infrom May 2016.2016 through December 2017. From 2010 to May 2016 he was Vice President and General
Hexcel Corporation | 2018 Proxy Statement | 17 |
| EXECUTIVE OFFICERS | |
Manager, Aerospace – Americas. Mr. Canario joined Hexcel as a result of our merger with the Ciba-Geigy merger in 1996 when he wasas Manager—International Business Development. He has held several positions within Hexcel including Vice President—Americas Sales and Marketing, Director—Financial Planning and Analysis, Manager—eCommerce and Supply Chain, Finance Manager—Asian Joint Ventures, and Manager—Global Operations Coordination. Prior to joining Ciba-Geigy, Mr. Canario worked at BP Chemicals as Business Development Manager, Project Engineer, and Operations Manager. Mr. Canario also worked at Leading Systems.
TIMOTHY SWORDS became 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 Engineer with AG Communications Systems and with the Johns Hopkins University Applied Physics Lab.
BRETT SCHNEIDER became our President, Global Fibers in January 2018. From May 2016 through 2017, Mr. Schneider was our Senior Vice President, Business Development, and from October 2012 to May 2016, Mr. Schneider served as our Vice President, Business Development. Mr. Schneider joined Hexcel in 2001 and has held several other positions with Hexcel, including Shared Services Manager, Global Project Manager at Hexcel Duxford, Plant Manager for our Salt Lake City Fiber operations, Site Manager at our Salt Lake City plant and Director of Advanced Manufacturing. Prior to joining Hexcel, Mr. Schneider served as Operations & Process Development Manager at Meridian Automotive Systems, Plant Manager at Cambridge Industries and Automation Development Manager at US Marine.
18 | Hexcel Corporation | 2018 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,December 31, 2017 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:
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 | ||||||||
Name and Address | Number of Shares of | Percent of Common Stock(1) | ||||
The Vanguard Group, Inc.(2) 100 Vanguard Boulevard | 7,131,796 | 7.95% | ||||
BlackRock, Inc.(3) 55 East 52nd Street | 5,258,284 | 5.86% | ||||
| (1) |
| (2) |
| (3) |
Hexcel Corporation | 2018 Proxy Statement | 19 |
| 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, 20172018 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 listed in the table. Except as otherwise indicated in the 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.
Name | Number of Shares of Common Stock(1) | Percent of Common Stock(2)(3) | Number of Shares of Common Stock(1) | Percent of Common Stock(2)(3)(4) | ||||||||||
Nick L. Stanage | 502,938 | * | 491,282 | * | ||||||||||
Joel S. Beckman | 33,883 | * | 36,040 | * | ||||||||||
Lynn Brubaker | 14,011 | * | 9,164 | * | ||||||||||
Jeffrey C. Campbell | 43,189 | * | 45,346 | * | ||||||||||
Cynthia M. Egnotovich | 7,156 | * | 9,313 | * | ||||||||||
W. Kim Foster | 30,185 | * | 32,286 | * | ||||||||||
Thomas A. Gendron | 42,798 | * | 44,955 | * | ||||||||||
Jeffrey A. Graves | 30,122 | * | 32,279 | * | ||||||||||
Guy C. Hachey | 7,560 | * | 9,519 | * | ||||||||||
David Hill(6) | 19,834 | * | ||||||||||||
David L. Pugh | 65,634 | * | 67,791 | * | ||||||||||
Wayne C. Pensky | 361,878 | * | ||||||||||||
Ira J. Krakower | 491,020 | * | ||||||||||||
Patrick J. Winterlich | 17,106 | * | ||||||||||||
Gail E. Lehman | 4,414 | * | ||||||||||||
Robert G. Hennemuth | 120,960 | * | 139,378 | * | ||||||||||
Thierry Merlot | 130,738 | * | 96,938 | * | ||||||||||
All executive officers and directors as a group (18 persons) | 1,983,576 | 2.1 | % | |||||||||||
Wayne C. Pensky | 297,643 | * | ||||||||||||
All executive officers and directors as a group (17 persons) | 1,147,253 | 1.3% | ||||||||||||
| (1) |
| (2) | Includes shares underlying RSUs that either (a) were vested, the delivery of which has been deferred at the election of the holder, or (b) will vest within 60 days thereafter. These shares are beneficially owned as follows: Mr. Stanage |
| Based on |
| An asterisk represents beneficial ownership of less than 1%. |
| 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. |
| Includes |
20 | Hexcel Corporation | 2018 Proxy Statement |
|
COMPENSATION DISCUSSION AND ANALYSIS
This section describes
In this Compensation Discussion and analyzesAnalysis, we address the material elements of 2016 compensation for ourpaid or awarded to the following executive officers identifiedof our company, who are listed in the Summary Compensation Table on page 43. Wethat follows this discussion, and who we refer to these individuals as the namedour “named executive officers, or “NEOs.officers.” The compensation committee of the board of directors is responsible for determining the compensation and benefits of the NEOs. The committee’s determination of the compensation of our CEO is subject to ratification by our independent directors.
| ◾ | Nick L. Stanage, our Chairman, Chief Executive Officer and President |
| ◾ | Patrick J. Winterlich, our Executive Vice President and Chief Financial Officer |
| ◾ | Gail E. Lehman, our Executive Vice President, General Counsel and Secretary |
| ◾ | Robert G. Hennemuth, our Executive Vice President, Human Resources and Communications |
| ◾ | Thierry Merlot, our President – Aerospace, Europe, Middle East and Asia Pacific |
| ◾ | Wayne C. Pensky, our former Executive Vice President and Chief Financial Officer, who ceased serving in those capacities on September 1, 2017 and retired at the end of 2017 |
In setting NEO compensation for 2016, the committee focused on the alignment of pay and
Our Operating Performance in 2017
Our operating performance with short-term and long-term goals designedin 2017 was strong, reflecting disciplined execution 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 andachieve operational excellence, as we drive manufacturing throughput, capacity expansionnew product and technology advances to support our customers’ growthprocess innovations 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 investenhanced leadership positions in the company with the expectation thatmarkets 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.serve:
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?
Our 2017 diluted net income per common share was $3.09, compared to $2.65 in 2016. The increase included a $0.24 per share benefit resulting from enactment of the U.S. Tax Cuts and Jobs Act. |
| ◾ | Adjusted |
| ◾ | Our net cash provided by operating activities was $428.7 million in 2017, compared to $401.4 million in 2016. Our free cash flow was a record $150.6 million in |
2017, compared to $73.5 million in 2016. Free cash flow equals our net cash provided by operating activities minus capital expenditures ($278.1 million in 2017; $327.9 million in 2016). |
| ◾ | We continue to make significant investments in capacity expansions and manufacturing process innovations to accommodate our customers’ anticipated growth. |
| ◾ | We also continue to make significant investments in research and technology, both internally and through acquisitions and collaborations. We concluded two acquisitions in 2017 that enhanced our product offerings and technology portfolio: |
| ◾ | Our acquisition of the Aerospace & Defense Business of Oxford Performance Materials, Inc. broadens our ability to supply thermoplastic, carbon fiber reinforced 3D printed parts to the |
| ◾ | Our acquisition of Structil S.A. includes product offerings and qualifications that expand our product range and technology portfolio for both existing and new customers in the aerospace, defense and industrial markets. |
Did our performance generate meaningful results under the metrics we use to measure our short-termOur Compensation Philosophy 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 ReturnPrinciples
TSR is one way stockholders may evaluate company performance. The long-termOur compensation ofphilosophy incorporates pay for performance to create sustainable value for 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 intostockholders. To further our compensation program that are described below inphilosophy, 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 discussion ofway we have structured the individual componentselements of our compensation, program.
The year over year improvement inwhich provide a significant level of variability depending on our financial results for eachperformance. These elements consist 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
|
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 long-term 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.for all executives other than Mr. Stanage, restricted stock units
Actual NEO compensation in 2016 included the following elements:
| 21 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
(“RSUs”). As demonstrated by the 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:
| * | CFO Target pay mix is based on Mr. Pensky’s targets, as Mr. Winterlich’s equity grants were made prior to his promotion. Variable compensation reflects target amounts. |
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: anon-qualified deferred compensation plan, supplemental retirement benefits and severance arrangements with respect to specified termination of employment events. See “Ongoing and Post-Employment Arrangements and Benefit Plans,” 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 “2017 Compensation – Personal Benefits.”
Compensation Provided for 2017
Salaries
| ◾ | For our named executive officers who continued to serve in the same capacities as in 2016, salaries were increased in the range of 3% to 5%. |
| ◾ | The salary paid to Ms. Lehman, who became our Executive Vice President and General Counsel in January 2017, reflects the terms of the letter agreement relating to her employment. |
| ◾ | Mr. Winterlich’s salary was increased, effective September 1, 2017, when he became our Executive Vice President and Chief Financial Officer. |
MICP – Achievement with regard to the three equally-weighted financial measures under our MICP:
| ◾ | Adjusted EBIT – $380 million target; $356.6 million actual performance; 70.3% award |
| ◾ | Adjusted Diluted Earnings Per Share – $2.67 target, $2.71 actual performance; 114.4% award |
| ◾ | Cash from Operating Activities – $485 million target; $543 million actual performance; 160.1% award |
The award payable to each named executive officer was equal to 114.91% of the executive’s target award opportunity (the target award opportunity for persons who were named executive officers for all of 2017 ranged from 55% to 100% of the named executive officers’ salaries).
For further information, including how we calculated the financial measures, see “2017 Compensation – Management Incentive Compensation Plan,” below.
Equity Awards – In 2017, we provided three types of equity awards for each named executive officer other than
22 | Hexcel Corporation | 2018 Proxy Statement |
| COMPENSATION DISCUSSION AND ANALYSIS | |
Mr. Stanage, having an aggregate value equal to the named executive officer’s target award opportunity (which ranged from 85% to 185% of the named executive officers’ salaries), as follows:
| ◾ | NQOs – 37.5% of the target award opportunity |
| ◾ | RSUs – 25% of the target award opportunity |
| ◾ | 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 310% of his salary):
| ◾ | NQOs – 37.5% |
| ◾ | PSAs – 62.5% |
The number of shares that ultimately will be provided under the PSAs will be based upon our performance during the period from January 1, 2017 through December 31, 2019 with respect to the following two financial measures:
| ◾ | ROIC (return on invested capital) (67% weighting) |
| ◾ | Relative EPS Growth (33% weighting) |
The Relative EPS Growth metric is a change from the EPS Growth metric used in 2016. Relative EPS Growth is computed based on our performance relative to the companies in the Standard & Poors (“S&P”) MidCap 400 Index, while the previous absolute EPS Growth metric was based only on our own performance.
See “2017 Compensation – Equity Awards” for additional information.
Performance Share Payout for 2015-2017 Period
Messrs. Stanage, Winterlich, Hennemuth, Merlot, and Pensky received equity awards in 2015, including PSAs providing for awards of our common stock based on our performance during the 2015-2017 period with regard to the following financial measures:
| ◾ | ROIC (75% weighting) |
| ◾ | EPS Growth (25% weighting) |
Based on our performance with regard to these financial measures during the 2015-2017 period, we provided a number of shares of our common stock equal to 114.32% of each named executive officer’s target PSA award opportunity.
See “2017 Compensation – Vesting of Performance Share Awards Granted in 2015” for further information.
Stockholder Advisory Vote on Executive Compensation
At our 2017 Annual Meeting, our stockholders approved, on an advisory basis, the compensation of our named executive officers. The stockholder vote in favor of named executive officer compensation totaled approximately 91% 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 needed to be made in response to the vote.
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 | |
◾ Considerable portion of pay is variable and performance-based |
| |
| ◾ No pledging, hedging or short selling by our | |
| ◾ No repricing of | |
| ||
◾ Limit on maximum incentive payouts | ||
◾ Compensation committee oversees annual compensation review and |
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, 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.
Hexcel Corporation | 2018 Proxy Statement | 23 |
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:
| COMPENSATION DISCUSSION AND ANALYSIS | |
“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 SettingExecutive Compensation Overview
Our Compensation Philosophy and Principles
The company’sOur philosophy is to deliver pay for performance. We seek to provide a level of performance that creates sustainable value for our stockholders by generating both short-term results while also making investments designed to increase profitability over the long-term.
Our compensation philosophy,principles, as articulated by the compensation committee, is:are to:
To attract, retain and motivate a high caliber of executive talent
| ◾ | Attract, retain and motivate a high caliber of executive talent |
| ◾ | Ensure that a significant portion of total target compensation is variable compensation based on company performance |
To ensure
| ◾ | Encourage long-term focus while recognizing the importance of short-term performance |
| ◾ | Determine compensation based on forward looking considerations and not solely on the basis of past compensation or results |
| ◾ | 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 |
| ◾ | Establish goals for performance-based compensation that are challenging yet attainable |
| ◾ | 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 |
| ◾ | Prevent and remedy executive misconduct, and impose appropriate discipline on individuals who engage in misconduct |
We believe 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 descriptionstructure of our policy regarding executive misconduct,compensation program, which authorizes recoveryis explained in detail below, is consistent with these principles.
Role of incentive compensation from an executive.
The process used by the company to implement this philosophy is described below.Compensation Committee, Compensation Consultant, Human Resources Department and Chief Executive Officer
TheRole of 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 accountableresponsible for defining the goalsoversight of our compensation policy, reviewing
and approving our compensation programs,benefit plans and overseeing our benefit programs. The compensation committee reviews and approves the compensation of the NEOs on an annual basis,our executive officers other than Mr. Stanage and determines Mr. Stanage’s compensation, including salary, cash incentives, equity grantsgoals and benefits. The committee’s approval of the compensation of our CEO istarget award opportunities, 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 compensation committee periodicallyannually 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, regulatory/compliance 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 and other factors it deems relevant.
The Comparator Group
The comparator group is comprised of companies which have attributesnoted 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 retention requirements, 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 – In particular,making its compensation decisions, the following criteria are consideredCompensation Committee was assisted by Semler Brossy Consulting Group LLC, which we refer to below as “Semler Brossy.” Semler Brossy was engaged directly by the Compensation Committee. The Compensation Committee assessed the independence of Semler Brossy in selectingaccordance 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 reaching its conclusion, the Compensation Committee noted that Semler Brossy does not provide any other services to us.
Role of our comparator group: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.
Industry, suchRole of our Chief Executive Officer – Mr. Stanage provides recommendations to the compensation committee as aerospace, defenseto 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 specialty chemicalsis not present during compensation committee discussions
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:
24 | Hexcel Corporation | 2018 Proxy Statement |
| COMPENSATION DISCUSSION AND ANALYSIS | |
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 2017, 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 15 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:
| ◾ | Industry fit – We consider publicly traded United States companies that are: |
| ◾ | In the same Global Industry Classification Standards (GICS)sub-industry as Hexcel (Aerospace and Defense); or |
| ◾ | In the GICSsub-industries that produce products that are similar to ours. |
| ◾ | Size – We consider companies that: |
| ◾ | Have revenues in the range of 1/3 to three times our revenues |
| ◾ | Have a market capitalization in the range of 1/3 to three times our market capitalization. |
| ◾ | Other qualitative and quantitative factors that enable us to identify companies with similar talent, business and operational characteristics. |
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 2017 compensation were below the market capitalization range criterion. Nevertheless, we believed that because those companies satisfied the other criteria used in our selection process, their inclusion in the peer group was appropriate.
The peer groups used in connection with the compensation committee’s assessment of competitive compensation, which occurred in November 2016, were the following:
AAR Corp. | H.B. Fuller Company | |||
Albemarle Corporation | Moog Inc. | |||
Barnes | Orbital ATK, Inc. | |||
| Rockwell Collins, Inc. | |||
Cabot Corporation | A. Schulman, Inc. | |||
Crane Co. | Teledyne Technologies, Incorporated | |||
Curtiss-Wright Corporation | Woodward, Inc. | |||
Esterline Technologies Corporation |
This is the same peer group that we used with respect to the determination of 2016 compensation.
General Industry SurveyOther 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. 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 upon the comparator group data, 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 compensation committee also considersreferenced the Towers Watson 2016 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 theAerospace & Defense Companies within that survey. Due to the breadth of companies in the survey, we size adjust the data based on our revenue for purposepurposes of comparison. In the case of Mr. Merlot, the compensation committee referenced European survey data for executives serving in similar roles in businesses with a revenue range comparable to the business for which Mr. Merlot has responsibility.
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| COMPENSATION DISCUSSION AND ANALYSIS | |
Use of Company Performance in our Compensation ProgramsComparative Data
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 own 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
While we view competitive market information as a helpful reference, this information is not a determinant of our executive compensation on its own. 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 2016,2017, target compensation for each NEO fell between thenamed executive officer was positioned within a competitive range of median and 75th percentile of the comparator group, reflecting the experience of several of our NEOs as well as their sustained good performance.market.
Applying these factors, the committee determined that 20162017 Compensation
Salaries
For those named 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 determinedofficers who continued to serve in the same manner used to determine the grant date values appearing in the last column of the Grants of Plan-Based Awardscapacities as in 2016, table on page 45.salary increases ranged from approximately 3% to 5%. Mr. Stanage’s salary increased by approximately 3%. In approving the salary increases for the
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% | |||||||||||||||||
Thenamed executive officers other than Mr. Stanage, the compensation committee considered the following factors, among others, in determining the initial 2016 compensation of each of our NEOs:
Nick L. Stanage: Mr. Stanage received an increase in his total compensation that reflected his continued success in the role of CEO and the company’s sustained strongStanage’s recommendations, which were based on performance during his tenure. 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. 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 products 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. See “Promotion of Patrick J. Winterlich,” below for information regarding the increase in his long-tenured leadershipsalary in connection with his promotion to the position of Executive Vice President and excellent relationshipsChief Financial Officer. Ms. Lehman’s salary was established in her letter agreement with key customers across Europe, the Middle East and Asia.us relating to her employment. See “Hiring of Gail E. Lehman,” below.
Management Incentive Compensation Plan
MICP Awards
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 currently or previously on our executive committee (Messrs. Stanage, Hennemuth and Pensky, Ms. Lehman and, for the NEOs. The cash incentiveportion of the year he served as our Chief Financial Officer, Mr. Winterlich), the actual amount received was based entirely upon our performance with regard to the financial measures. For Mr. Merlot and, for the portion of the year prior to his becoming a member of our executive committee, Mr. Winterlich, 70% of the target award payout amountswas based on our performance with regard to the financial measures and 30% was based on achievement of individual goals and objectives. Because of 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 following table shows the target award opportunities for each of our named executive officers with respect to our 2017 MICP:
| Name | Percentage of Salary | Target Award Opportunity | ||||||
Nick L. Stanage | 100 | % | $ | 957,900 | ||||
Patrick J. Winterlich(1) | 65 | % | $ | 276,250 | ||||
Gail E. Lehman(2) | 60 | % | $ | 247,500 | ||||
Robert G. Hennemuth | 60 | % | $ | 248,641 | ||||
Thierry Merlot(3) | 55 | % | $ | 199,056 | ||||
Wayne C. Pensky(4) | 75 | % | $ | 400,389 | ||||
| (1) | Reflects Mr. Winterlich’s target award opportunity after his promotion to the position of Executive Vice President and Chief Financial Officer. His actual 2017 award was prorated based on his salary, target award percentage and length of service during 2017 before and after his promotion. See “2017 Compensation – Promotion of Patrick J. Winterlich.” |
| (2) | Ms. Lehman became our Executive Vice President, General Counsel and Secretary in January 2017. See “2017 Compensation – Hiring of Gail E. Lehman.” |
| (3) | 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 using an exchange rate of 1.16 dollars per euro, which is based on the average actual forward rates for the preceding twelve months. |
| (4) | Mr. Pensky ceased serving as our Executive Vice President and Chief Financial Officer on September 1, 2017, but he continued to be employed by us as a Special Advisor to the Chief Executive Officer until December 31, 2017. See “2017 Compensation – Retirement of Wayne C. Pensky.” |
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Financial Measures Used in the MICP
In 2017, we used three financial measures in connection with the MICP: Adjusted EBIT (earnings before interest and taxes), Adjusted Diluted Earnings Per Share (referred to below as “Adjusted Diluted EPS”) and Cash from Operating Activities. We used the same measures in our MICP for 2016 appearand, as was the case in 2016, 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
| ◾ | Adjusted EBIT is operating income from continuing operations of Hexcel and its subsidiaries plus business consolidation and restructuring expense, plus severance costs and plus (minus) other expense (income), net, as reported in our consolidated statement of operations. |
| ◾ | For the 2017 calculation of Adjusted EBIT, we excluded an aggregate of $6.0 million, which related to acquisition- and divestiture-related expense and severance expense. |
Adjusted Diluted EPS
| ◾ | 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 anyone-time tax adjustments that relate to prior years, the tax effects of the adjustments we made in calculating Adjusted EBIT, as defined above (and identified in our earnings releases), and theafter-tax effect of interest expense related to borrowings we made to repurchase our shares during the year. |
| ◾ | In addition to reflecting theafter-tax effect of the adjustments to Adjusted EBIT noted above, we excluded the $0.24 increase in EPS caused by the change in valuation of our deferred tax assets and liabilities resulting from the enactment of the Tax Cuts and Jobs Act on December 22, 2017. |
Cash From Operating Activities
| ◾ | Cash from Operating Activities is net cash provided from operating activities of continuing operations for the period from October 1, 2016 through December 31, 2017. |
| ◾ | We continue to use a15-month measurement period because we believe it enhancesperiod-to-period comparability for this particular financial measure. By beginning the period in the fourth quarter of the prior year, we avoid the impact ofyear-end adjustments, such as adjustments to payables and receivables, which might otherwise result in variability that does not reflect management’s performance. |
| ◾ | We did not make any adjustments with respect to this financial measure. |
Why Do We Use These Financial Measures?
| ◾ | We believe Adjusted EBIT provides an appropriate focus on our operating income while excluding factors (interest and taxes) that generally do not reflect theday-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 withreductions-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. |
| ◾ | 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 can better align our performance with investor expectations. We eliminate theafter-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 theafter-tax effect of interest expense incurred with respect to those repurchases. We eliminated the increase in diluted earnings per share resulting from the change in valuation of our deferred tax assets and liabilities following the enactment of the Tax Cuts and Jobs Act because the increase did not reflect our operating performance. |
| ◾ | We believe Cash from Operating Activities addresses a key metric for our stockholders and an important performance element of our operations, namely our |
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| COMPENSATION DISCUSSION AND ANALYSIS | |
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 could receive an award only if a specified threshold level of performance was achieved; no award would be provided with respect to the financial measure if performance was below the threshold level. Once the threshold level of performance was achieved, the award could range from a minimum (threshold) of 50% to a maximum of 200% of the target award.
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 | $ | 380 million | $ | 342 million | $ | 418 million | ||||||
| 90% | 110% | |||||||||||
Adjusted EPS | $ | 2.67 | $ | 2.40 | $ | 2.94 | ||||||
| 90% | 110% | |||||||||||
Cash from Operating Activities(1) | $ | 485 million | $ | 388 million | $ | 582 million | ||||||
| 80% | 120% | |||||||||||
| (1) | Covers the performance period from October 1, 2016 through December 31, 2017. |
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 | $ | 390 million | $ | 356.6 million | 70.30 | % | ||||||
Adjusted EPS | $ | 2.67 | $ | 2.71 | 114.37 | % | ||||||
Cash from Operating Activities | $ | 485 million | $ | 543.26 million | 160.06 | % | ||||||
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 114.91% 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 | $ | 957,900 | $ | 1,100,723 | ||||
Patrick J. Winterlich(1) | $ | 219,661 | $ | 252,412 | ||||
Gail E. Lehman | $ | 247,500 | $ | 284,402 | ||||
Robert G. Hennemuth | $ | 248,641 | $ | 285,714 | ||||
Thierry Merlot | $ | 199,056 | $ | 228,735 | ||||
Wayne C. Pensky | $ | 400,389 | $ | 460,087 | ||||
| (1) | Effective upon his assumption of duties as our Executive Vice President and Chief Financial Officer on September 1, 2017, we increased Mr. Winterlich’s base salary from an annual rate of $299,000 to an annual rate of $425,000, and increased his annual target award opportunity under the MICP from 45% to 65% of his annual base salary (prorated for the portion of 2017 during which he served as our Executive Vice President and Chief Financial Officer). See “2017 Compensation – Promotion of Patrick J. Winterlich.” |
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| COMPENSATION DISCUSSION AND ANALYSIS | |
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“Executive Compensation.”
Equity Awards
Our equity awards are designed to promote achievement of Tax Regulations on our Executive Compensation—Deductibility of Compensation—Section 162(m)” 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 alsolonger 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 | Percentage of Salary | Equity Incentive Compensation Opportunity | ||||||||
Nick L. Stanage | 310 | % | $ | 2,969,490 | ||||||
Patrick J. Winterlich(1) | 60 | % | $ | 179,550 | ||||||
Gail E. Lehman(2) | 135 | % | $ | 556,875 | ||||||
Robert G. Hennemuth | 145 | % | $ | 600,883 | ||||||
Thierry Merlot | 85 | % | $ | 307,632 | ||||||
Wayne C. Pensky(3) | 185 | % | $ | 987,625 | ||||||
| (1) | Mr. Winterlich’s target award opportunity as a percentage of salary reflected his former position as Senior Vice President – Tax, Systems & Enterprise Reporting. In connection with his promotion to the position of Executive Vice President and Chief Financial Officer, his target award opportunity was increased to 140%, effective for awards made in 2018. See “2017 Compensation – Promotion of Patrick J. Winterlich.” |
| (2) | Ms. Lehman became our Executive Vice President, General Counsel and Secretary in January 2017. See “2017 Compensation – Hiring of Gail E. Lehman.” |
| (3) | Mr. Pensky ceased serving as our Executive Vice President and Chief Financial Officer on September 1, 2017, but he continued to be employed by us as a Special Advisor to the Chief Executive Officer until December 31, 2017. See “2017 Compensation – Retirement of Wayne C. Pensky.” |
Equity Awards Provided
Our equity incentive compensation for 2017 consisted ofnon-qualified stock options (“NQOs”), Restricted Stock Units (“RSUs”) and Performance-Based Share Awards (“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:
| ◾ | NQOs – 37.5% |
| ◾ | RSUs – 25% |
| ◾ | 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.
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| COMPENSATION DISCUSSION AND ANALYSIS | |
Non-Qualified Stock Options
In accordance with the equity award allocations described above, we granted NQOs to each of our goalnamed executive officers in 2017 based upon 37.5% of their respective total equity incentive compensation opportunities. Using a Black-Scholes methodology, we valued the stock options, which were granted in January 30, 2017, at $18.194 per share. As a result of this valuation, the named executive officers received NQOs for the respective numbers of underlying shares set forth below:
| Name | Number of Shares Underlying NQOs | |||
Nick L. Stanage | 61,204 | |||
Patrick J. Winterlich | 3,700 | |||
Gail E. Lehman | 11,478 | |||
Robert G. Hennemuth | 12,384 | |||
Thierry Merlot | 6,340 | |||
Wayne C. Pensky | 20,356 | |||
The options vest as to be competitive with peer companies. We make annual awards of equity incentives to NEOs. Equity awards prior to May 2013 were made under our 2003 Incentive Stock Plan (the “2003 ISP”). In May 2013, our stockholders approved the adoptionone-third of the 2013 Incentiveunderlying 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 Plan (the “2013 ISP”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 (“ASC Topic 718”), which supersedesbased upon 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:
Equity awards may be authorized only by the board, the compensation committee, or by 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
Theclosing per share exercisemarket price of a stock option shall not be less than the closing price of a share of our common stock on the NYSEJanuary 30, 2017 date of grant, which was $50.50 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 | 888 | |||
Gail E. Lehman | 2,756 | |||
Robert G. Hennemuth | 2,974 | |||
Thierry Merlot | 1,522 | |||
Wayne C. Pensky | 4,889 | |||
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| COMPENSATION DISCUSSION AND ANALYSIS | |
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. We also provide dividend equivalents, payable in additional RSUs. For each RSU then held by the grantee (including RSUs previously granted as dividend equivalents), the dividend equivalent to be provided to the grantee will be equal to the per share value of any cash or stock dividends 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 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 PSAs previously granted as dividend equivalents), the dividend equivalent to be provided to the grantee will be equal to the per share value of any cash or stock dividends 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 on the closing per share market price of our common stock on the January 30, 2017 date of grant, which was $50.50 per share. The per share price was equivalent to the fair value of the PSAs on the date of grant, determined in accordance with 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 | 36,751 | |||
Patrick J. Winterlich | 1,333 | |||
Gail E. Lehman | 4,135 | |||
Robert G. Hennemuth | 4,462 | |||
Thierry Merlot | 2,284 | |||
Wayne C. Pensky | 7,333 | |||
Financial Measures Used in Connection with the PSAs
In 2017, we used two long-term financial measures in connection with the PSAs: 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. Relative EPS
Growth was a new financial measure that we first used in 2017. Our allocation of 33% of the total PSA award opportunity to Relative EPS Growth resulted in a reduction in the weighting of ROIC, which was weighted at 75% of the total target award in 2016. However, we believe that the 67% weighting for ROIC remains sufficiently high to underscore
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| COMPENSATION DISCUSSION AND ANALYSIS | |
our belief that ROIC achievement is a critical measure of our performance and to maintain a principal focus of our executives on this financial measure.
How Do We Calculate the Financial Measures?
ROIC
| ◾ | 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 2017, 2018 and 2019)
Average (debt (current & long-term) + equity - cash and cash equivalents at December 31, 2016, 2017, 2018 and 2019)
| ◾ | We adjust EBIT to exclude other expense (income), as reported in our consolidated statement of operations. |
| ◾ | For purposes of the calculation, we adjust the tax rate to exclude certain items that relate to prior years, consistent with the calculation of adjusted net income in our earnings releases. |
| ◾ | We exclude from the denominator with respect to the relevant year amounts invested in acquisitions effected during that year. |
| ◾ | 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 degree to which our diluted earnings per share from continuing operations, calculated in accordance with GAAP, for the performance period from January 1, 2017 – December 31, 2019 exceeds the diluted earnings per share from continuing operations of the companies in the Standard & Poor’s (“S&P”) MidCap 400 Index, calculated in accordance with GAAP, for the 36 month period beginning one quarter before the performance period began and ending one fiscal quarter before the performance period ends (the “comparison period”). |
| ◾ | We used a one fiscal quarter earlier start and end to the comparison period for the S&P MidCap 400 companies to enable us to calculate the number of shares ultimately issuable under the PSA awards and to distribute the shares underlying PSA awards in the first quarter of the year following the performance period. |
Award payouts in connection with the Relative EPS Growth performance measure are based on the extent to which the percentage improvement in our diluted earnings per share during the performance period exceeds the percentage improvement in diluted earnings per share of each of the companies within the S&P MidCap 400 companies during the comparison period (the percentage of S&P MidCap 400 companies whose performance we exceed is referred to below as the “Higher Performance Percentile”), as follows:
Award Level | Higher Performance Percentile | Percentage of Target Awards Opportunity | ||||||
Threshold | 40 | % | 50 | % | ||||
Target | 55 | % | 100 | % | ||||
Maximum | 75 | % | 200 | % | ||||
To address possible changes in the composition of the S&P Midcap 400 during the performance period, we established the following guidelines:
| ◾ | If a company has negative earnings per share at the beginning or end of the comparison period, it is removed from the comparison. |
| ◾ | 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. |
| ◾ | If an S&P MidCap 400 company consolidates with another company, the consolidated company will not be in the comparison. |
| ◾ | 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. |
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| COMPENSATION DISCUSSION AND ANALYSIS | |
Why Do We Use These Financial Measures?
ROIC
| ◾ | 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. |
| ◾ | We adjust the tax rate in the ROIC computation to exclude certain items relating to prior years 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. |
Relative EPS Growth
| ◾ | 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 diluted earnings per share from continuing operations, 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. |
| ◾ | We considered but decided not to adopt relative total stockholder return as a performance measure. We reached this determination because we believe that |
financial measures should support our business model and, therefore, be based on operating measures on which our executives can focus and, through their efforts, more directly influence. Therefore, while we decided to include a relative performance measure for 2017, we chose a measure based on EPS growth, which would more directly reflect the performance of our management. In contrast, total stockholder return can be affected by extraneous factors such as global and domestic economic conditions, legal and regulatory changes, geopolitical risks and other factors beyond the control of management. Moreover, total stockholder return may encourage a short-term focus that can promote undesirable executive behavior. |
Vesting of PSAs Granted in 2015
In 2015, as part of our long-term incentive plan, we granted PSAs to our named executive officers and other employees for the 2015-2017 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 was calculated in the same manner as described above for PSAs granted in 2017, but covering periods and dates relevant to determining the average ROIC during the 2015-2017 period. We made an additional adjustment for 2017 to eliminate the increase in our equity resulting from the tax benefit realized due to the enactment of the Tax Cuts and Jobs Act.
The target award was payable if the average ROIC equaled 14.0%. The average of our ROIC for the 2015-2017 period was 14.12%, which resulted in an award attributable to ROIC that was equal to 110.4% of the target award.
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| COMPENSATION DISCUSSION AND ANALYSIS | |
EPS – This financial measure was calculated based upon the cumulative increase in our diluted earnings per share during the 2015-2017 period. Although the calculation of this measure typically is made in accordance with GAAP, the compensation committee reduced 2017 EPS to eliminate the benefit resulting from adoption of the Tax Cuts and Jobs Act
because the benefit does not reflect our operating performance. The target award was payable if EPS for the period was $7.58. Actual EPS for the period was $7.94, which resulted in an award attributable to EPS that was equal to 126.1% of the target award.
The weighted average award for the two financial measures was 114.32% of the target award; as a result, in January 2018, each of our named executive officers who were granted PSAs in 2015 received a number of shares of our common stock equal to 114.32% of the PSAs granted to him, as indicated in the following table:
Name | Number of PSAs at Target(1) | Number of Vesting(2) | ||||||
Nick L. Stanage | 32,714 | 38,324 | ||||||
Patrick J. Winterlich | 1,161 | 1,359 | ||||||
Robert G. Hennemuth | 4,633 | 5,426 | ||||||
Thierry Merlot | 1,946 | 2,279 | ||||||
Wayne C. Pensky | 7,641 | 8,951 | ||||||
| (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 Performance-Based Awards (i.e., the PSAs), are granted annually on the third full trading day after the financial results for the last completed fiscal year are released.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 prohibitsOur RSUs and NQOs vest in equal increments on the first three anniversaries 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 2017. These grants may be made only to persons who are not executive officers, and no grant exceeding 10,000 shares may be made to any person in a single year. In 2017, Equity Grant Committee awards totaled 10,900 RSUs.
Promotion of Patrick J. Winterlich
Effective upon his assumption of duties as our Executive Vice President and Chief Financial Officer on September 1, 2017, we increased Mr. Winterlich’s base salary from an annual rate of $299,000 to an annual rate of $425,000, and increased his annual target award opportunity under the MICP from 45% to 65% of his annual base salary (prorated for the portion of 2017 during which he served as our Executive Vice President and Chief Financial Officer). He also received a grant of backdatedlong-term incentive equity awards
In January 2016, we used three forms in the Company’s normal 2018 grant cycle based on a target award opportunity equal to 140% of equity incentives grantedhis base salary, an increase from the 60% of base salary amount applicable prior to the NEOs under the 2013 ISP: NQOs, RSUs and PSAs. At its meeting in January 2016, the committee approved the dollar value of each NEO’s aggregatehis promotion (his 2017 equity award for 2016 as a percentagegrants were based on his level of compensation prior to his promotion). In approving Mr. Winterlich’s compensation, the NEO’s salary for 2016, and approved the forms in which the awards would be granted. Thecompensation 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 fromsurvey data for other companies’ principal financial officers, as well as his loss of expatriate benefits, described in the compensation consultant, determined that the mix of types of awards for 2016 would be:following paragraph.
Through December 31, 2017, Mr. Stanage: 37.5% NQOs; 62.5% PSAsWinterlich, a United Kingdom national, remained on our expatriate benefits plan (including medical, dental and vision coverages) and continued to receive certain supplemental family medical benefits, tuition benefits and taxgross-up benefits under his existing expatriate arrangement. Beginning in September 2017, we phased out these benefits. Effective January 1, 2018, Mr. Winterlich
Messrs.
34 | Hexcel Corporation | 2018 Proxy Statement |
| COMPENSATION DISCUSSION AND ANALYSIS | |
receives the same benefits as are available generally to all other executive officers residing in the United States.
Hiring of Gail E. Lehman
Ms. Lehman became our Executive Vice President and General Counsel in January 2017. Under the terms of our letter agreement with Ms. Lehman relating to her employment, she received a base salary of $412,500, an annual target award opportunity under the MICP of 60% of base salary and an equity award incentive opportunity equal to 135% of her base salary. In approving Ms. Lehman’s compensatory terms, the compensation committee considered comparative peer group and survey data relating to the other companies’ principal legal officers.
Retirement of Wayne C. Pensky Krakower, Hennemuth
Wayne C. Pensky ceased to serve as our Executive Vice President and Merlot: 37.5% NQOs; 25% RSUs; 37.5% PSAs
ThisChief Financial Officer on September 1, 2017 and retired from his employment with Hexcel on December 31, 2017. Under an agreement with us dated January 1, 2018, Mr. Pensky is consistent with the mix of awards granted in 2015. The committee continuesproviding consulting services to believe that it is important that a substantial portionus during 2018, not to exceed 20% of the long-term awards be made in the formaverage level 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 based on the valuation methodology usedservices performed by us to determine accounting expense for the fair value 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 increasesMr. Pensky 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 Units36-month
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. RSUs granted after January 1, 2014 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 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 are earned.
Since 2012, the company has used Return on Invested Capital, or “ROIC,” to measure our long-term success. ROIC is based onafter-tax results, which is the way investors evaluate our performance. ROIC incentivizes the efficient use of assets to improve the return we earn on our investments and provides alignment with our strategic plan to achieve long-term growth in net earnings.
While the committee believes that the use of ROIC to measure long term performance continues to be appropriate due to the importance of ROIC to investors, in 2015 it added a second metric, cumulative GAAP earnings per share, or “EPS,” in order 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 defined as the average return2017. We have agreed to pay Mr. Pensky $266,925 for 2016, 2017his consulting services in 2018. The agreement does not otherwise modify Mr. Pensky’s equity awards, deferred compensation arrangements 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-beingremain in effect in accordance with their terms. See the compensation tables under “Executive Compensation,” below for additional information.
Personal Benefits
We have ceased providing personal benefits to newly hired or appointed named executive officers, including Mr. Stanage, Ms. Lehman and retention. Our NEOsMr. Winterlich, but we continued to provide limited personal benefits to Mr. Pensky and Mr. Hennemuth. Mr. Pensky and Mr. Hennemuth each received a $12,000 annual automobile allowance and an additional $10,600 allowance ($5,600 for Mr. Hennemuth) which is intended to be used for club membership dues, financial counseling and tax preparation, and supplemental life insurance beyond the basic life insurance available to our U.S.-based employees. This allowance is provided only if actually used, and no part of the allowance may participatebe used as a reimbursement for taxes due on the income recognized by the named executive officer as a result of receiving 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 $8,461 in these2017.
The compensation committee reviews the personal benefits annually.
Additional information regarding personal benefits for our named executive officers is provided in the “All Other Compensation” column of the Summary Compensation Table and the accompanying footnotes.
Ongoing and Post-Employment Arrangements
We have several plans and agreements addressing compensation for our named executive officers that accrue value as the executive continues to the same extent as our other employees.work for us, provide special benefits upon certain types of termination events and provide retirement benefits. These plans mayand agreements were designed to be subjecta part of a competitive compensation package that encourages our executives to tax and regulatory restrictions that may limit benefits payable underremain employed by us. In some cases, the plan or impose adverse consequences if benefitsplans described below are paid based on compensation above certain levels. These plans play an important role in keeping us competitive in attracting and retaining officers.available to other employees as well.
Hexcel Corporation 401(k) Retirement Savings Plan
QualifiedUnder our 401(k) Plan
Our qualified 401(k)Retirement Savings Plan, allowsreferred to below as the “401(k) Plan,” 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 date
each U.S. employee based on our performance during the preceding year; for all matching, discretionary and fixed2017, the contribution was 3.0% of an employee’s cash compensation.
All of our contributions and earnings to vest atincrementally over the rate of 20% for each year of service with us—meaning that all contributions are fully vested afterfirst five years
One of the investment optionsservice. Amounts credited to an employee’s account may be invested in a number of funds. 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.
Hexcel Corporation | 2018 Proxy Statement | 35 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
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.
NonqualifiedNon-Qualified Deferred Compensation Plan
OurUS-based NEOs areUnder our Non-Qualified Deferred Compensation Plan, which we refer to as 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 option
distributions are in a lump sum or in a series of monthly, quarterly or annual installments after termination of service, as elected byavailable under the employee401(k) Plan.
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”2017” on page 5248 below for details on ouradditional information.
US-based NEOs’ participation in the NDCP.Other Benefits for Named Executive Officers
Supplemental Retirement Benefits forUS-Based NEOs
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 executive deferred compensation agreements (“SERPs”EDCAs”) with Messrs. Hennemuth and Pensky 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 EDCAs generally provide benefits to Messrs. Pensky and Hennemuth based on a formula related to salary and cash incentive awards they respectively earned subsequent to the effective date of the EDCAs. These agreements are described in more detail under “Executive Compensation – Pension Benefits in 2017,” below. We initially entered into these agreements between 1995 and 2009. 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 review the competitive aspect of this type of benefit upon a future NEO hire.
For each of ourUS-based NEOs,Ms. Lehman, we will provide a death benefit so long as they continue to beif the named executive officer dies while employed by us equal to two times the sum of (i) salary on the date of death and (ii) the average of the MICP awards paid 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). Executives who are entitled to this death benefit do not participate in our basic life insurance program that is available to our U.S.-based employees.
Retirement Plans in which Mr. Merlot Participates
Mr. Merlot’s retirement benefits are governed by the terms of the collective labor agreement for the Chemical Industries in France (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 and a payment related to hisnon-competition obligations, unless such obligations are waived by Hexcel upon retirement. Mr. Merlot also receives a pension whichthat is funded by contributions from the companyHexcel and Mr. Merlot as required by French regulations.
PerquisitesSeverance 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 ourhis offer of employment letter. We refer to all of the foregoing documents collectively as the “Severance Arrangements.”
The 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. named executive officers, such payments and other benefits generally include a lump sum payment equal to the sum of (or, in the case of Mr. Stanage, equal to 1.5 times the sum of) annual perquisites program. For each of Messrs. Pensky, Krakowerbase salary and Hennemuth, our perquisites program is designedaverage annual bonus (generally with respect to provide specific benefits that will enhance retention. The committee reviews our perquisites program annually. Our perquisites program forUS-based NEOs provides for anthe last three annual car allowance 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. Thesebonus amounts have not increased since 2000. The additional allowance may be used for:paid) under the MICP, as well as continued participation in several
reimbursement of club membership dues
expenses incurred for financial counseling and tax preparation
36 | Hexcel Corporation | 2018 Proxy Statement |
| COMPENSATION DISCUSSION AND ANALYSIS | |
premiumscompany health, welfare and other plans, or provision of equivalent benefits (“Continued Participation Benefits”) for supplemental lifeone year (in the case of Mr. Stanage, 1.5 years).
If we terminate the named executive officer for any 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 health insurance beyondaverage annual bonus under the standard life and health insurance availableMICP, as well as Continued Participation Benefits for 1.5 to our executives3 years.
OurUS-based NEOs are not permitted to use any part of theSee “Executive Compensation—Potential Payments Upon Termination or Change in Control” below for additional annual allowance as a reimbursement for taxes due on the income recognized by theUS-based NEOs as a result of receiving these perquisites.
As anon-US based NEO, Mr. Merlot receives only a car allowance, in accordance with local practices for employees in France.information.
We believe that the perquisites we offerSeverance Arrangements can 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 areWe believe that the payments to be made under the 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 our 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 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.
Severance Arrangements we entered into with certain of our named executive officers through 2013 provided for a “modifiedgross-up.” Under the modifiedgross-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 taxgross-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 enhance our abilitythe excise tax; in that case, the payment 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 mindfulnamed executive officer will be reduced to the extent necessary to avoid imposition of market trends and advocacy regarding these benefits.the excise tax.
Messrs. Stanage, Hennemuth and Pensky previously entered into Severance Benefits Upon Termination of EmploymentArrangements with us that provided for a modified taxgross-up. However, effective in 2014, Mr. Stanage relinquished his right to a modifiedgross-up. As Mr. Pensky is no longer employed by us, his modifiedgross-up provisions are no longer in effect. Therefore, only Mr. Hennemuth continues to have a Severance Arrangement that provides a modifiedgross-up.
We providehave determined that no newly hired or promoted executive will be eligible for taxgross-up 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 the level of benefits is both reasonable and competitive. Mr. Merlot’s separation benefit is determined under the French CLA.
Wein connection with our change in control arrangements. Accordingly, Severance Arrangements we entered into a Separation and Consulting Agreementin October 2017 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.Winterlich and Ms. Lehman, as well as with two other executive officers who are not named executive officers, do not provide for such payments.
Single-TriggerAccelerated Vesting of Equity VestingAwards in Connection with a Change in Control
We utilize “single-trigger” vesting forOur equity awards—which means the equity awards provide that they will vest upon a change in control. In adopting this approach,This is aso-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.
Hexcel Corporation | 2018 Proxy Statement | 37 |
| COMPENSATION DISCUSSION AND ANALYSIS | |
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 reachdirectors, and 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:
the target dollar value is as follows*:
| Position |
(as a multiple of base salary)(1) | |
Chief Executive Officer | 6x | |
Executive Vice Presidents | 3x | |
Other Executive Officers | 2x | |
Other Officers | 1x salary | |
Directors | 5x |
| Target |
untilUntil the target dollar value has been reached,is 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 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 a testing date, 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 grandchildwith testing recommencing on 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.
All of our NEOs arenamed executive officers and directors, other than Ms. Lehman and Mr. Winterlich, who first became executive officers in 2017, were in compliance with the policy. We monitor compliance with the guidelines by all executive officers and directors on a quarterly basis.policy as of December 31, 2017.
Our Insider Trading Policy expressly states that 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.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 Hexcel 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.
38 | Hexcel Corporation | 2018 Proxy Statement |
| COMPENSATION DISCUSSION AND ANALYSIS | |
In addition, the policy provides for recovery, at the board’sBoard’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
| ◾ | 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 |
fraudulent or intentional misconduct that caused or might reasonably be expected to cause material reputational, financial or other harm to the company
| ◾ | 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 Hexcel |
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
| ◾ | 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 Hexcel |
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.
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.
The Impact of Tax Regulations on our Executive CompensationConsiderations
Deductibility
Prior to the enactment of Compensation—Section 162(m)
Underthe Tax Cuts and Jobs Act on December 22, 2017, Section 162(m) of the Internal Revenue Code there is(“Section 162(m)”) placed a $1.0$1 million annual limitlimitation on the deductibility of compensation paid by a publicly held company to certain NEOs, subject to limited exceptions. One exception applies to compensation that meets alleach of the requirements of “qualified performance-based compensation” underits chief executive officer and its three other most highly paid executive officers, other than its chief financial officer (defined as “covered employees” in Section 162(m) and the applicable regulations thereunder. Compensation that meets all of these requirements will be fully deductible). However, an exception to the company. We consider deductibility as one factor along$1 million limitation applied to “performance based compensation” if specified conditions were satisfied. In previous years (including 2017) and to the extent we deemed consistent with others that are relevantthe objectives of our
compensation program, we structured executive compensation in setting compensation. NQOs and PSAs issued under the 2003 ISP and the 2013 ISP area manner intended to qualify for the exception and preserve deductibility as performance-based compensation. As noted on page 34, we also grant RSUs without any performance requirement as one of the mechanisms we employ to foster retention of key employees; these RSUs do not meet 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 underfederal income tax purposes. Specifically, the MICP withgenerally was designed to, among other things, facilitate the intent that they qualify as performance-based compensationdeductibility under Section 162(m) so that such awards are fully deductibleof our annual cash incentive awards. In addition, among the factors we considered in including NQOs and PSAs in our equity program was our ability to preserve, to the company; however, changes in tax laws (and interpretations of those laws), as well as other factors beyond the company’s control, also affectextent otherwise available, the deductibility of executive compensation.income realized upon the exercise of NQOs and vesting of PSAs. Nevertheless, we retained the discretion to authorize, and have authorized, compensation that was not subject to the exception for “performance based compensation,” such as the RSUs that we have granted to our executives under our equity awards program. We authorized compensation that was not subject to the exception because we believe such compensation facilitates the achievement of our compensation objectives
The Tax Cuts and Jobs Act amended Section 162(m) to eliminate the ability of public companies to structure compensation for covered employees that would not be subject to the $1 million limitation on deductibility. Therefore, all compensation paid to a “covered employee” will be subject to the $1 million limitation. In addition, the committee may determineamendments to Section 162(m) increase the number of covered employees subject to the $1 million limitation. Under the amendments, a public company’s chief financial officer will be a “covered employee.” Moreover, once an executive is a “covered employee” in any taxable year beginning after December 31, 2016, he or she will retain “covered employee” status permanently. While the Section 162(m) amendments do not apply to compensation under a written binding contract that corporate objectives justifyis in effect as of November 2, 2017 and is not materially modified thereafter, the costscope of beingthis accommodation is unclear, and we are unable to deduct annual and long-term incentive compensation. For these and other reasons,determine with specificity the companyextent to which, if any, compensation payable underpre-existing arrangements with covered employees will not necessarilybe deductible in all circumstances limitfuture years.
While we will continue to consider the tax effect (including with respect to the expected lack of deductibility under amended Section 162(m)) of compensation decisions, the principal consideration behind our selection of components of executive compensation continues to be whether the component can facilitate achievement of our executive compensation program objectives. In this regard, for 2018, we have not made any changes to the amount which is permitted to be deductible as an expensebasic structure of the company under Section 162(m). The committee will consider various alternatives to preserving the deductibility ofour executive compensation payments and benefits to the extent reasonably practicable and to the extent consistent with the company’s other compensation objectives.program.
We were able to deduct substantially all expense associated with the compensation paid to our NEOs in 2016.
Hexcel Corporation | 2018 Proxy Statement | 39 |
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.
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 Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report onForm10-K for the fiscal year ended December 31, 2016.2017. 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
40 | Hexcel Corporation | 2018 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 | 2017 | 957,900 | 1,855,926 | 1,113,546 | 1,100,723 | 1,837,701 | 150,970 | 7,016,766 | ||||||||||||||||||||||||
Chairman, CEO and President | 2016 | 930,000 | 1,685,870 | 1,011,715 | 1,362,450 | 1,611,762 | 797,805 | 6,681,602 | ||||||||||||||||||||||||
| 2015 | 885,000 | 1,438,107 | 862,815 | 1,111,774 | 1,298,609 | 122,314 | 5,718,619 | |||||||||||||||||||||||||
Wayne C. Pensky | 2017 | 533,851 | 617,211 | 370,357 | 460,086 | 688,216 | 124,288 | 2,794,009 | ||||||||||||||||||||||||
EVP and CFO | 2016 | 508,430 | 587,819 | 352,786 | 558,637 | 341,011 | 97,115 | 2,445,798 | ||||||||||||||||||||||||
| 2015 | 484,219 | 559,831 | 335,897 | 456,861 | 298,985 | 112,543 | 2,248,336 | |||||||||||||||||||||||||
Patrick J. Winterlich | 2017 | 341,281 | 112,161 | 67,318 | 252,412 | (7) | — | 371,436 | 1,144,608 | |||||||||||||||||||||||
EVP and CFO | ||||||||||||||||||||||||||||||||
Gail E. Lehman | 2017 | 412,500 | 347,996 | 208,813 | 284,402 | — | 89,399 | 1,343,110 | ||||||||||||||||||||||||
EVP; General Counsel; and Secretary | ||||||||||||||||||||||||||||||||
Robert G. Hennemuth | 2017 | 414,402 | 375,518 | 225,314 | 285,713 | 278,721 | 81,561 | 1,661,229 | ||||||||||||||||||||||||
EVP; Human Resources and Communications | 2016 | 402,332 | 352,037 | 211,250 | 353,650 | 217,349 | 77,511 | 1,614,129 | ||||||||||||||||||||||||
| 2015 | 387,977 | 339,415 | 203,664 | 292,845 | 206,746 | 76,010 | 1,506,657 | |||||||||||||||||||||||||
Thierry Merlot(8) | 2017 | 361,920 | 192,203 | 115,350 | 228,735 | — | 80,628 | 978,836 | ||||||||||||||||||||||||
President; Aerospace, EMEA/AP | 2016 | 320,633 | 140,354 | 84,247 | 250,506 | — | 78,449 | 874,189 | ||||||||||||||||||||||||
| (1) | Reflects 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 | 2017 Amount Included in Stock Awards | 2016 Amount Included in Stock Awards | 2015 Amount Included in Stock Awards | |||||||||||||||||||||||||||||||||||||||||||
| Target | Maximum | Target | Maximum | Target | Maximum | 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 | 1,855,926 | 3,711,851 | 1,685,870 | 3,371,740 | 1,438,107 | 2,876,215 | ||||||||||||||||||||||||||||||||||||
Wayne C. Pensky | 352,700 | 705,400 | 355,898 | 671,797 | 305,543 | 611,086 | 617,211 | 1,234,422 | 352,700 | 705,400 | 355,898 | 671,797 | ||||||||||||||||||||||||||||||||||||
Ira J. Krakower | 238,100 | 476,199 | 223,449 | 446,897 | 213,846 | 427,691 | ||||||||||||||||||||||||||||||||||||||||||
Patrick J. Winterlich | 112,161 | 224,321 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Gail E. Lehman | 347,996 | 695,991 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Robert G. Hennemuth | 211,224 | 422,449 | 203,667 | 407,333 | 187,954 | 375,907 | 375,518 | 751,036 | 211,224 | 422,449 | 203,667 | 407,333 | ||||||||||||||||||||||||||||||||||||
Thierry Merlot | 84,212 | 168,425 | 192,203 | 384,406 | 84,212 | 168,425 | — | — | ||||||||||||||||||||||||||||||||||||||||
| (2) | For additional information regarding the assumptions made in calculating these amounts, see Note 10, “Stock-Based Compensation,” to the consolidated financial statements included in our Annual Report on Form10-K for the year ended December 31, |
| (3) | Reflects the aggregate grant date fair value of all NQOs granted to the |
Hexcel Corporation | 2018 Proxy Statement | 41 |
| EXECUTIVE COMPENSATION | |
| (4) | Reflects amounts earned under the MICP with respect to |
| (5) | For each year, represents the difference between the actuarial present value of the executive’s accumulated benefit under his applicable retirement plan, as of December 31 of the |
| These changes in present value |
| (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 Deferred Compensation Plan | Premiums for Life Insurance | Premiums for Long-Term Disability Insurance | Premiums for Accidental Death Insurance | Perquisites Allowance(a) | Other(b) | ||||||||||||||||||||||||||||||||||||||||||
Nick L. Stanage | $21,200 | $48,045 | — | $2,979 | $4,251 | $3,330 | — | $ | 22,245 | $ | 121,144 | $ | 2,970 | $ | 4,251 | $ | 360 | — | — | |||||||||||||||||||||||||||||||||||||
Wayne C. Pensky | $26,500 | $60,782 | — | $1,980 | $5,013 | $240 | $22,600 | $ | 27,645 | $ | 66,810 | $ | 1,980 | $ | 5,013 | $ | 240 | $ | 22,600 | — | ||||||||||||||||||||||||||||||||||||
Ira J. Krakower | $26,500 | — | $35,873 | $20,941 | (b) | $564 | $120 | $22,600 | ||||||||||||||||||||||||||||||||||||||||||||||||
Patrick J. Winterlich | $ | 16,285 | — | $ | 1,708 | $ | 2,171 | $ | 194 | — | $ | 351,078 | ||||||||||||||||||||||||||||||||||||||||||||
Gail E. Lehman | $ | 13,500 | — | $ | 1,635 | — | $ | 240 | �� | — | $ | 74,024 | ||||||||||||||||||||||||||||||||||||||||||||
Robert G. Hennemuth | $21,200 | $31,478 | — | $1,980 | $5,013 | $240 | $17,600 | $ | 22,245 | $ | 34,483 | $ | 1,980 | $ | 5,013 | $ | 240 | $ | 17,600 | — | ||||||||||||||||||||||||||||||||||||
Thierry Merlot(c) | — | — | — | — | $2,051 | $1,590 | $7,868 | — | — | $ | 3,877 | — | — | $ | 8,461 | — | ||||||||||||||||||||||||||||||||||||||||
| (a) |
| (b) | For Mr. |
| (c) | In addition to the amounts in the table, Hexcel contributed |
| (7) | Effective upon his assumption of duties as our Executive Vice President and Chief Financial Officer on September 1, 2017, we increased Mr. Winterlich’s base salary from an annual rate of $299,000 to an annual rate of $425,000, and increased his annual target award opportunity under the MICP from 45% to 65% of his annual base salary (prorated for the portion of 2017 during which he served as our Executive Vice President and Chief Financial Officer). |
| (8) | For Mr. Merlot, the amounts in the |
42 | Hexcel Corporation | 2018 Proxy Statement |
| EXECUTIVE COMPENSATION | |
Grants of Plan-Based Awards in 20162017
Name | Grant Date | Date Board or Compensation Committee took Action to Grant Such Award(3) |
Estimated Future Payouts Under |
Estimated Future Payouts Under | All Other Stock Awards: Number of Shares of Stock or Units (#)(4) | All Other Option Awards: Number of Securities Underlying Options (#)(5) | Exercise or Base Price of Option Awards ($/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 | |||||||||||||||||||||||||||||||||||||
Estimated Possible Non-Equity Incentive | Estimated Future Equity Incentive | All Other Stock Awards: Number of Shares of Stock | All Other Option Awards: Number of Securities Underlying | Exercise or Base Price of Option | Grant Date Fair Value of Stock and Option | |||||||||||||||||||||||||||||||||||||||||||
| Name | Grant Date(3) | Approval Date(3) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | or Units (#)(4) | Options (#)(5) | Awards ($/Sh) | Awards ($)(6) | ||||||||||||||||||||||||||||||||||||
Nick L. Stanage | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | 478,950 | 957,900 | 1,915,800 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | 18,375 | 36,751 | 73,502 | — | — | — | 1,855,926 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | — | 61,204 | 50.50 | 1,113,546 | |||||||||||||||||||||||||||||||||||||
Wayne C. Pensky | — | — | 200,194 | 400,388 | 800,777 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | 3,666 | 7,333 | 14,666 | — | — | — | 370,317 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | 4,889 | — | — | 246,895 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | — | 20,356 | 50.50 | 370,357 | |||||||||||||||||||||||||||||||||||||
Patrick J. Winterlich | — | — | 110,916 | 221,833 | 443,665 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | 666 | 1,333 | 2,666 | — | — | — | 67,317 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | 888 | — | — | 44,844 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | — | 3,700 | 50.50 | 67,318 | |||||||||||||||||||||||||||||||||||||
Gail E. Lehman | — | — | 123,750 | 247,500 | 495,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | 2,067 | 4,135 | 8,270 | — | — | — | 208,818 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | 2,756 | — | — | 139,178 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | — | 11,477 | 50.50 | 208,813 | |||||||||||||||||||||||||||||||||||||
RobertG.Hennemuth | — | — | 124,321 | 248,641 | 497,282 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | 2,231 | 4,462 | 8,924 | — | — | — | 225,331 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | 2,974 | — | — | 150,187 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | — | 12,384 | 50.50 | 225,314 | |||||||||||||||||||||||||||||||||||||
Thierry Merlot | — | — | 96,903 | 193,805 | 387,610 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | 1,142 | 2,284 | 4,568 | — | — | — | 115,342 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | 1,522 | — | — | 76,861 | |||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 01/24/2017 | — | — | — | — | — | — | — | 6,340 | 50.50 | 115,350 | |||||||||||||||||||||||||||||||||||||
| (1) | The amounts shown reflect the |
| (2) | Reflects the number of shares of our common stock underlying PSAs granted under the 2013 |
| (3) | For our regular annual equity awards, the compensation committee approved a dollar value (as a percentage of salary) and the algorithm under which the awards would be converted into shares at its meeting on January |
| (4) | Reflects RSUs granted under the 2013 ISP, which will vest and convert into shares at the rate ofone-third on each of the first three anniversaries of the grant date. The terms of the RSUs are described in more detail on page |
| (5) | Reflects NQOs granted under the 2013 ISP, which will vest and become exercisable at the rate ofone-third 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 the amount that we will expense in our financial statements over the award’s vesting |
Compensation Arrangement with Mr. Stanage
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:
Hexcel Corporation | 2018 Proxy Statement | 43 |
| 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. KrakowerWayne C. Pensky
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 continueWayne C. Pensky ceased to be employed by Hexcel and serve as our 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,Chief Financial Officer on September 1, 2017 Mr. Krakower became Special Counsel to the CEO for the remainder of his employment. After the cessation ofand retired from his employment with Hexcel on March 31, 2017, Mr. Krakower will provide services on a consulting basis through December 31, 2017. Those services consistSee “Compensation Discussion and Analysis – 2017 Compensation – Retirement 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 considerationWayne C. Pensky” on page 35 for information regarding 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.agreement.
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 20162017 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 33-3529-33 of this proxy statement for a detailed discussion of NQOs, RSUs and PSAs.
Outstanding Equity Awards at 20162017 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, 2016:2017:
| Option Awards | Stock Awards | 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) | 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 ($/Sh) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(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 | 38,324 | 2,370,339 | 78,165 | 4,834,505 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 61,204 | 50.50 | 01/30/2027 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 64,812 | 41.71 | 01/26/2026 | 01/26/2016 | 21,605 | 43,207 | 41.71 | 01/26/2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 18,860 | 37,718 | 43.96 | 01/27/2025 | 01/27/2015 | 37,719 | 18,859 | 43.96 | 01/27/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 23,275 | 11,637 | 43.01 | 01/28/2024 | 01/28/2014 | 34,912 | 43.01 | 01/28/2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 41,321 | 28.27 | 01/28/2023 | 01/28/2013 | 41,321 | 28.27 | 01/28/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 46,562 | 25.03 | 01/30/2022 | 01/30/2012 | 46,562 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 57,068 | 19.02 | 01/31/2021 | 01/31/2011 | 57,068 | 19.02 | 01/31/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 77,174 | 10.90 | 02/01/2020 | 02/01/2010 | 52,174 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wayne C. Pensky | 19,659 | 1,011,269 | 16,301 | 838,523 | 24,945 | 1,542,848 | 15,994 | 989,229 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 22,600 | 41.71 | 01/26/2026 | 01/30/2017 | 20,356 | 50.50 | 01/30/2027 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7,343 | 14,683 | 43.96 | 01/27/2025 | 01/26/2016 | 7,534 | 15,066 | 41.71 | 01/26/2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 11,123 | 5,561 | 43.01 | 01/28/2024 | 01/27/2015 | 14,685 | 7,341 | 43.96 | 01/27/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 24,710 | 28.27 | 01/28/2023 | 01/28/2014 | 16,684 | 43.01 | 01/28/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 32,686 | 25.03 | 01/30/2022 | 01/28/2013 | 24,710 | 28.27 | 01/28/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 42,163 | 19.02 | 01/31/2021 | 01/30/2012 | 32,686 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 57,842 | 10.90 | 02/01/2020 | 01/31/2011 | 42,163 | 19.02 | 01/31/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 72,261 | 7.83 | 01/26/2019 | 02/01/2010 | 45,000 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ira J. Krakower | 13,497 | 694,308 | 10,928 | 562,136 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 01/26/2009 | 60,000 | 7.83 | 01/26/2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Patrick J. Winterlich | 9,883 | 611,264 | 2,642 | 163,408 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 15,255 | 41.71 | 01/26/2026 | 01/30/2017 | 3,700 | 50.50 | 01/30/2027 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4,885 | 9,767 | 43.96 | 01/27/2025 | 01/26/2016 | 1,138 | 2,275 | 41.71 | 01/26/2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7,785 | 3,891 | 43.01 | 01/28/2024 | 01/27/2015 | 2,233 | 1,115 | 43.96 | 01/27/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 18,148 | 28.27 | 01/28/2023 | 01/28/2024 | 2,345 | 43.01 | 01/28/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gail E. Lehman | 2,774 | 171,572 | 4,162 | 257,420 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 24,807 | 25.03 | 01/30/2022 |
| 01/30/2017
|
|
| 11,477
|
|
| 50.50
|
|
| 01/30/2027
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
44 | Hexcel Corporation | 2018 Proxy Statement |
| EXECUTIVE COMPENSATION | |
| 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 ($/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) | ||||||||||||||||||||||||||||||
Robert G. Hennemuth | 11,766 | 727,727 | 9,649 | 596,791 | ||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 12,384 | 50.50 | 01/30/2027 | |||||||||||||||||||||||||||||||||||||
| 01/26/2016 | 4,512 | 9,021 | 41.71 | 01/26/2026 | ||||||||||||||||||||||||||||||||||||
| 01/27/2015 | 8,904 | 4,451 | 43.96 | 01/27/2025 | ||||||||||||||||||||||||||||||||||||
| 01/28/2014 | 10,263 | 43.01 | 01/28/2024 | |||||||||||||||||||||||||||||||||||||
| 01/28/2013 | 15,913 | 28.27 | 01/28/2023 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 21,631 | 25.03 | 01/30/2022 | |||||||||||||||||||||||||||||||||||||
Thierry Merlot | 5,182 | 320,507 | 4,355 | 269,357 | ||||||||||||||||||||||||||||||||||||
| 01/30/2017 | 6,340 | 50.50 | 01/30/2027 | |||||||||||||||||||||||||||||||||||||
| 01/26/2016 | 1,800 | 3,597 | 41.71 | 01/26/2026 | ||||||||||||||||||||||||||||||||||||
| 01/27/2015 | 3,741 | 1,870 | 43.96 | 01/27/2025 | ||||||||||||||||||||||||||||||||||||
| 01/28/2014 | 4,192 | 43.01 | 01/28/2024 | |||||||||||||||||||||||||||||||||||||
| 01/28/2013 | 6,336 | 28.27 | 01/28/2023 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 10,067 | 25.03 | 01/30/2022 | |||||||||||||||||||||||||||||||||||||
| 01/31/2011 | 12,300 | 19.02 | 01/31/2021 | |||||||||||||||||||||||||||||||||||||
| 02/01/2010 | 16,100 | 10.90 | 02/01/2020 | |||||||||||||||||||||||||||||||||||||
| 01/26/2009 | 5,495 | 7.83 | 01/26/2019 | |||||||||||||||||||||||||||||||||||||
| (1) | All options listed in this table vest |
| (2) | This column reflects the following: |
| RSUs under the ISP(a) | Earned PSAs(b) | RSUs under the ISP(a) | Earned PSAs(b) | |||||||||||||
Nick L. Stanage | — | 31,084 | — | 38,324 | ||||||||||||
Wayne C. Pensky | 10,748 | 8,911 | 15,994 | 8,951 | ||||||||||||
Ira J. Krakower | 7,260 | 6,237 | ||||||||||||||
Patrick J. Winterlich | 8,524 | 1,359 | ||||||||||||||
Gail E. Lehman | 2,774 | — | ||||||||||||||
Robert G. Hennemuth | 6,487 | 5,482 | 6,340 | 5,426 | ||||||||||||
Thierry Merlot | 2,676 | 2,239 | 2,903 | 2,279 | ||||||||||||
| (a) | RSUs granted under the |
| (b) | PSAs granted in 2015 for which the performance period has ended and the level of performance has been determined. Following the compensation committee’s certification of performance, the underlying shares were distributed to holders of the PSAs in January 2018. |
| (3) | Values were computed using a price of |
| (4) | This column reflects the shares that each |
Hexcel Corporation | 2018 Proxy Statement | 45 |
| EXECUTIVE COMPENSATION | |
Option Exercises and Stock Vested in 20162017
| Option Awards | Stock Awards(1) | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||
Nick L. Stanage | — | — | 40,744 | $ | 1,699,432 | |||||||||||
Wayne C. Pensky | — | — | 20,140 | $ | 832,990 | |||||||||||
Ira J. Krakower | — | — | 18,618 | $ | 766,859 | |||||||||||
Robert G. Hennemuth | 25,883 | $ | 700,766 | 12,858 | $ | 531,918 | ||||||||||
Thierry Merlot | 8,307 | $ | 192,972 | 4,947 | $ | 217,543 | ||||||||||
| Option Awards | Stock Awards(1) | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on ($) | ||||||||||||
Nick L. Stanage | 25,000 | 1,277,535 | 31,084 | 1,584,973 | ||||||||||||
Wayne C. Pensky | 25,103 | 1,349,749 | 14,140 | 719,001 | ||||||||||||
Patrick J. Winterlich | 14,321 | 399,569 | 5,392 | 274,174 | ||||||||||||
Gail E. Lehman | — | — | — | — | ||||||||||||
Robert G. Hennemuth | — | — | 8,651 | 439,899 | ||||||||||||
Thierry Merlot | 12,000 | 635,160 | 3,556 | 180,636 | ||||||||||||
| (1) | Reflects RSUs and PSAs that vested during |
Pension Benefits in Fiscal Year 20162017
Our NEOsnamed executive officers 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 (a “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)35-36). The material features of the SERPsSERP 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 for 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.
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 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. |
| ◾ |
|
| ◾ | In lieu of the lump sum payment, Mr. Stanage may make an irrevocable election to receive the Normal Retirement Benefit. If he makes such an election, the election will not take effect until 12 months after the date on which it is made, 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 will not take place until the fifth anniversary of the date on which his employment terminates. Payments, if any, made after Mr. Stanage’s death will be made to a surviving beneficiary or to Mr. Stanage’s estate. |
| ◾ | 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.” The SERP generally defines the “Early Retirement Benefit” as a monthly benefit starting on the first of the month after the later of (i) the month in which his employment terminates or (ii) the month in which he |
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.
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.
46 | Hexcel Corporation | 2018 Proxy Statement |
| EXECUTIVE COMPENSATION | |
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
attains the age of 55, ending with the payment for the month in which his death occurs or, if later, after the payment of 120 such payments, which will be an amount equal to the product of his Final Average Pay and Benefit Percentage less any vested contributions made by us for his account under our 401(k) Plan (subject to computation as set forth in the SERP), and reduced by 1/4% per payment for each full calendar month by which the commencement of the Early Retirement Benefit precedes the Mr. Stanage’s attainment of age 65. |
| ◾ | In lieu of the lump sum payment, Mr. Stanage may make an irrevocable election to receive the Early Retirement Benefit, which will be payable in a manner similar to that with respect to an election to receive the Normal Retirement Benefit discussed above. |
| ◾ | Should Mr. Stanage die before receiving any benefits under the SERP, his designated beneficiary will receive a lump sum that is actuarially equivalent to the 50% survivor annuity the beneficiary would have received had |
Upon certain other types of termination, or permitted elections, the amount and form of benefit are different.
| ◾ | 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 for cause—no benefits are payable |
Termination without cause, or by the executive for good reason
| ◾ | Termination without cause, or by Mr. Stanage for good reason |
12 months of service are added for purposes of computing the benefits percentage
| ◾ | 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)
| ◾ | Upon termination without cause, or by Mr. Stanage 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 SERP) |
| ◾ | 24 months are added for purposes of computing the benefits percentage |
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.
| ◾ | 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 .54.
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:
The executive is entitled to receive a monthly benefit upon retirement equal to 1/12th of his accrued benefit. The accrued monthly benefit is equal to 1.5% of the executive’s aggregate salary and cash incentive awards earned while employed by us multiplied by a fraction of X/67, with |
| ◾ | The normal monthly retirement benefit is payable starting 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 be payable beginning on the calendar month after he terminates employment and will end on his 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. |
| ◾ | Upon termination for cause, no benefits are payable. |
Hexcel Corporation | 2018 Proxy Statement | 47 |
If the executive’s employment terminates prior to age 65, then
| EXECUTIVE COMPENSATION | |
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.
| ◾ | Each executive has agreed 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 with us. |
| ◾ | 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. |
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.
| ◾ | 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: |
Upon a change in control, the executive’s benefits become payable.
| ◾ | the value of the medical and dental insurance is based on the group insurance provided by us to our U.S. employees at the time of termination of the executive’s employment |
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 years following his termination of employment with us.
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.
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:
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.
| ◾ | 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 of accumulated benefits payable to eachUS-basedU.S.-based NEOnamed executive officer as of December 31, 2016, including2017, as well as the number of years of service credited to eachthatUS-basedU.S.-based NEO,named executive officer, under each pension and retirement plan listed below,below. The present value of accumulated benefits were 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. 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 ($)(1) | Payments During Last Fiscal Year ($) | 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 | Supplemental Executive Retirement Agreement | 8.17 | 7,615,406 | 0 | ||||||||||||||||||||
Wayne C. Pensky | Executive Deferred Compensation Agreement | 23.42 | 2,983,724 | 0 | Executive Deferred Compensation Agreement | 24.42 | 3,671,940 | 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 | Executive Deferred Compensation Agreement | 11.75 | 2,113,529 | 0 | ||||||||||||||||||||
| (1) | Generally, the amounts in this column were calculated assuming retirement at age 65, |
| normal retirement age under the relevant pension plans and arrangements, and using the interest rate and mortality assumptions 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 |
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 (except with respect to Mr. Krakower, who was over age 65 at December 31, 2016), and reflect the following discount rates used to determine 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.
| 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, 2.80%, Messrs. Pensky and Hennemuth, 3.20%. 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 42 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 is calculated. |
| Mr. Pensky retired at the end of 2017, when he was 62 years old. On July 1, 2018, he will receive a lump sum payment under his EDCA. |
NonqualifiedNon-Qualified Deferred Compensation in Fiscal Year 20162017
All information
Under the NDCP, eligible U.S. employees, including our U.S. named executive officers, may defer amounts of 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 table below isNDCP, up to 6% of the participant’s excess compensation. We also provide the same fixed and profit-sharing contributions with respect to our NDCP,such excess contributions on the same basis as described on pages 36-37. above under “Compensation Discussion and Analysis – Ongoing and Post-Employment Arrangements – Hexcel Corporation 401(k) Retirement Plan” with respect to the 401(k) Plan. All participant and Hexcel contributions are fully vested at all times.
48 | Hexcel Corporation | 2018 Proxy Statement |
| EXECUTIVE COMPENSATION | |
See “Pension Benefits in Fiscal Year 2017—Supplemental Executive Retirement Agreement with Mr. Stanage."
Amounts credited to a participant’s account may be invested in a number of national funds based upon the funds, other than the Hexcel stock fund, available under the 401(k) Plan.
Messrs. Stanage, Pensky and Hennemuth participated in the NDCP in 2016.2017. 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.2017. 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) | ||||||||||||||||
Nick L. Stanage | NDCP | 84,226 | 48,045 | 14,632 | 648,000 | |||||||||||||||
Wayne C. Pensky | NDCP | 67,512 | 60,782 | 24,565 | 1,034,099 | |||||||||||||||
Ira J. Krakower | NDCP | — | — | — | — | |||||||||||||||
Robert G. Hennemuth | NDCP | 44,590 | 31,478 | 9,743 | 353,975 | |||||||||||||||
Executive Contributions in Last Fiscal | Registrant Contributions in Last Fiscal | Aggregate Earnings in Last Fiscal | Aggregate Balance at Last Fiscal Year-End($)(3) | |||||||||||||
Nick L. Stanage | 61,970 | 102,847 | 30,413 | 900,725 | ||||||||||||
Wayne C. Pensky | 34,564 | 57,645 | 16,851 | 1,175,109 | ||||||||||||
Patrick J. Winterlich | — | — | — | — | ||||||||||||
Gail E. Lehman | — | — | — | — | ||||||||||||
Robert G. Hennemuth | 26,809 | 33,329 | 9,233 | 434,414 | ||||||||||||
| (1) | Our contributions to the NDCP or related payments to the |
| (2) | The aggregate annual earnings in |
| (3) | This column includes the |
Potential Payments upon 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, 2017. The information in this section does not include information related to:
| ◾ | distributions under the NDCP. See “Non-Qualified Deferred Compensation in Fiscal Year 2017.” |
| ◾ | RSUs, PSAs and shares underlying stock options that vested prior to the termination event. |
| ◾ | short-term incentive payments that would not be increased due to the termination event. |
| ◾ | distributions to Mr. Stanage under the SERP other than incremental payments payable to Mr. Stanage that are addressed below. |
| ◾ | distributions to Messrs. Pensky and Hennemuth under their EDCAs. See “Pension Benefits in 2017—Retirement Agreements with Messrs. Pensky and Hennemuth.” |
| ◾ | other payments and benefits provided on anon-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 foregoing documents collectively as the “Severance Arrangements.”
The Severance Arrangements 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), except in circumstances related to a change in control. 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.
Hexcel Corporation | 2018 Proxy Statement | 49 |
| EXECUTIVE COMPENSATION | |
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.
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
| ◾ | upon termination of the covered executive’s employment for any reason the executive shall receive certain accrued and vested payments |
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”)
| ◾ | 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, based on the portion of the year prior to the executive’s death (the“pro-rata bonus”) |
upon termination due to the executive’s disability, the executive shall receive thepro-rata bonus and certain disability benefits
| ◾ | upon termination due to the executive’s disability, the executive shall receive thepro-rata bonus and specified 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
| ◾ | 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
| ◾ | 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
| ◾ | 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
| ◾ | Continued Participation 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 theThe Executive Severance Policy. Policy does not provide for a taxgross-up with respect to excise taxes incurred under Section 280G and Section 4999 of the Internal Revenue Code in connection with a change in control.
The multiples applicable for determining Mr. Stanage’s severance payments and period of post-employment benefits continuationyears in which he will be provided Continued Participation Benefits under the policy are:
1.5X in the case of all qualifying terminations other than a change in control or
| ◾ | 1.5x in the case of all qualifying terminations other than a change in control or |
2.5X
| ◾ | 2.5x in the case of a qualifying termination during a limited period prior to, or within two years following, 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 eighteen 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, the period is extended to thirty months. However, his 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 or her employment for good reason, the executive will receive: |
| ◾ | 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 |
| ◾ | Continued Participation Benefits for one year |
| ◾ | in addition, 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 |
| ◾ | in the event that we terminate the executive for any reason other than for disability or cause, or if the |
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
a lump sum payment equal to the sum of his then current base salary and his average MICP award over the prior three years
50 | Hexcel Corporation | 2018 Proxy Statement |
| EXECUTIVE COMPENSATION | |
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
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, the executive will receive the same payments and benefits as described above except that: |
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
| ◾ | 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 |
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
| ◾ | 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 for two years instead of one |
the lump sum payment will be equal to three times the sum described above
| ◾ | Mr. Hennemuth also will be entitled to receive agross-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 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. |
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 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 |
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 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. Pensky also entered into a severance agreement with us, but the termination provisions are inapplicable because he retired at the end of 2017.
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
| ◾ | up to 20x the average monthly compensation paid (based on the 12 months prior to termination), including bonus payments |
a notice period payment approximately equal to 3X the compensation he received the month prior to termination
| ◾ | 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) |
anon-compete payment equal to 12 months’ average salary for the prior 12 months, including bonus payments (unless we waive hisnon-compete obligations)
Retirement AgreementsAgreement with Mr. Stanage
OurUS-based NEOs are party to various arrangements that provide for benefits payable upon retirement. As described on pages 49-50,46-47, 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’shis termination for good reason or the executive’shis termination without cause or for good reason during a potential change in control or within two years following a change in control. None of our other retirement programs for ourUS-based NEOs provide for any form of enhanced or accelerated benefit upon resignation by the executive other than for good reason.
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. Below 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.
NQOs
Voluntary departure or termination without cause—NEO
| ◾ | Voluntary departure or termination without cause—the named executive officer has 90 days to exercise the option to the extent vested; to the extent not vested, the option terminates. |
| ◾ | 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 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 theten-year term of the option). |
| ◾ | Termination for Cause—all options are forfeited. |
Hexcel Corporation | 2018 Proxy Statement | 51 |
Disability/Death—all options immediately vest and remain exercisable for one year.
| EXECUTIVE COMPENSATION | |
| ◾ | Change in control—all options 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 options, to the extent they remain outstanding following the change in control, remain exercisable for two years. |
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.
RSUs
Voluntary departure or termination with or without cause—all RSUs are forfeited.
| ◾ | Voluntary departure or termination with or without cause—all RSUs are forfeited. |
Disability/Death—all RSUs immediately vest and convert to stock.
| ◾ | 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.
| ◾ | 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.
| ◾ | 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.
| ◾ | Termination for cause—the entire award is forfeited. |
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.
| ◾ | 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 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. If termination occurs within the first two years of the performance period, the award is limited to 100% of the shares that would be provided for target performance. 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 named executive officer 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 immediately, based on target performance, unless an acquiring company exchanges the PSA for the right to receive a comparable publicly traded security, in which case the |
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.
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 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 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.
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 |
| ◾ | 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 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
52 | Hexcel Corporation | 2018 Proxy Statement |
| EXECUTIVE COMPENSATION | |
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”.
“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
| ◾ | A 10% (in the case of Mr. Stanage) or a material (in the case of Mr. Hennemuth) reduction in the executive’s base salary |
| ◾ | A material diminution in the executive’s position, duties, responsibilities or authority |
| ◾ | 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 plan of substantially equivalent value |
| ◾ | 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 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) |
| ◾ | 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 |
| ◾ | Any termination by us of the executive’s employment which is not effected pursuant to a notice that complies with the applicable severance arrangement |
| ◾ | 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 at the date of his agreement |
| ◾ | Willful failure to pay the executive any portion of compensation within a specified number of days after such compensation is due |
Mr. Winterlich’s and Ms. Lehman’s severance agreement 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 duties after we have notified the executive in writing with specificity of the nonperformance or (ii) the willful engagement by the NEOnamed executive 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.
Benefits Payable upon Termination of Employment on December 31, 20162017
Other than the benefits described on pages 38-40 and 52-57,46-53, there are no agreements, arrangements or plans that entitle named 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 benefits and enhancements 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 on December 31, 2016. However, the following2017, exclusive of items are excluded from the table:
The amounts reflected as the present value of the accumulated benefitdescribed in the “Pension Benefits Table” on page 51, allintroductory paragraph of which are vestedthis section.
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. Because Mr. Pensky retired at the end of 2017, other than his EDCA benefit, there were no additional benefits or enhancements payable to him following his retirement.
Hexcel Corporation | 2018 Proxy Statement | 53 |
| EXECUTIVE COMPENSATION | |
Benefits Payable Upon Termination of Employment on December 31, 20162017
| 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 ($)(1) | Incremental Benefit under SERP or EDCA ($)(2) | Benefits Continuation ($)(3) | Accelerated Vesting of Equity Awards (value based on 12/31/2016 share price) ($)(4) | Total Termination Benefits ($) | ||||||||||||||||
Nick L. Stanage | ||||||||||||||||||||
◾ Voluntary retirement | — | — | — | — | — | |||||||||||||||
◾ Involuntary or good reason termination | 4,299,098 | 1,107,609 | 22,036 | — | 5,428,743 | |||||||||||||||
◾ Involuntary or good reason termination after change in control | 5,373,873 | 2,215,217 | 36,727 | — | 7,625,817 | |||||||||||||||
◾ Death | 1,500,000 | — | — | — | 1,500,000 | |||||||||||||||
◾ Disability | — | 1,928,060 | — | — | 1,928,060 | |||||||||||||||
Patrick J. Winterlich | ||||||||||||||||||||
◾ Voluntary retirement | — | — | — | — | — | |||||||||||||||
◾ Involuntary or good reason termination | 515,584 | — | 18,530 | 78,692 | 613,346 | |||||||||||||||
◾ Involuntary or good reason termination after change in control | 1,031,709 | — | 37,061 | 871,794 | 1,940,564 | |||||||||||||||
◾ Death | 1,102,018 | — | — | 713,870 | 1,815,888 | |||||||||||||||
◾ Disability | — | — | — | 713,870 | 713,870 | |||||||||||||||
Gail E. Lehman | ||||||||||||||||||||
◾ Voluntary retirement | — | — | — | — | — | |||||||||||||||
◾ Involuntary or good reason termination | 661,328 | — | 14,691 | 85,807 | 721,826 | |||||||||||||||
◾ Involuntary or good reason termination after change in control | 1,242,656 | — | 29,382 | 559,256 | 1,831,294 | |||||||||||||||
◾ Death | 1,242,656 | — | — | 387,642 | 1,630,298 | |||||||||||||||
◾ Disability | — | — | — | 387,642 | 387,642 | |||||||||||||||
Robert G. Hennemuth | ||||||||||||||||||||
◾ Voluntary retirement | — | — | — | — | — | |||||||||||||||
◾ Involuntary or good reason termination | 725,138 | — | 10,300 | — | 735,438 | |||||||||||||||
◾ Involuntary or good reason termination after change in control | 2,175,414 | — | 30,900 | — | 2,206,314 | |||||||||||||||
◾ Death | 1,495,567 | — | — | — | 1,495,567 | |||||||||||||||
◾ Disability | — | — | — | — | — | |||||||||||||||
| Cash Severance/ Payment at Death ($) | 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 ($) Non- Competition Payment ($)(5) Benefits Continuation ($)(6) Accelerated Vesting of Equity Awards (value based on 12/31/2016 share price) ($)(7) Total Termination Benefits ($) Thierry Merlot(10) ◾ Voluntary retirement ◾ Involuntary termination(8) ◾ Involuntary termination after change in control(8) ◾ Death(9) ◾ Disability(9) — — — — — 987,838 592,702 — — 1,580,540 987,838 592,702 — — 1,580,540 — — — — — — — — — —
| (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.
54 | Hexcel Corporation | 2018 Proxy Statement |
| EXECUTIVE COMPENSATION | |
| (2) | For all |
| (3) | Represents Hexcel’s share of the value of welfare/medical benefits for |
| (4) | Reflects the value of equity awards that were unvested on December 31, |
| (5) | Assumes that the company will |
| (6) | 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. |
| (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. |
| (10) | For Mr. Merlot, the amounts in this chart are paid or determined in the local currency, |
Hexcel Corporation | 2018 Proxy Statement | 55 |
PROPOSAL 2—APPROVAL OF THE COMPANY’S 2016 EXECUTIVE COMPENSATION
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Approval of the Company’s 2017 Executive Compensation |
We are seeking a stockholder vote with respect to compensation awarded to our named executive officers for 2016 as required pursuant to Section 14A of the Exchange Act.
The company’s executive compensation program and compensation paid to the named executive officers are described on pages 22-4121-39 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: to provide competitive overall pay relative to peers, taking into account company performance, to effectively tie pay to performance, and to align the named executive officers’ interest with the interest of 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.programs:
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, the compensation tables and related material included in thisthe proxy statement.statement for the 2018 Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTEFOR APPROVAL OF THE
THE RESOLUTION APPROVING THE COMPANY’S 20162017 EXECUTIVE COMPENSATION
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 relating to their vote.
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At the Annual Meeting of Stockholders in 2011, we recommended an annual vote. A majority 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, policies and practices and thereby provide a more regular means for the company to obtain information on investor sentiment about our executive compensation.
You may elect to have 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-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 A VOTE FOR
AN ANNUAL STOCKHOLDER ADVISORY VOTE
REGARDING COMPENSATION AWARDED TO HEXCEL’S NAMED EXECUTIVE OFFICERS
EQUITY COMPENSATION PLAN INFORMATION
The following information is provided as of December 31, 2016:2017:
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(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) | ||||||||||||||||||
| (a) | (b) | (c) | (a) | (b) | (c) | |||||||||||||||||||
Equity compensation plans approved by security holders | 3,513,094(2) | $ | 26.08(3) | 2,501,625(4) | 2,470,906 | (2) | $ | 31.18 | (3) | 1,321,057 | (4) | |||||||||||||
Equity compensation plans not approved by security holders | 0 | N/A | 0 | 0 | N/A | 0 | ||||||||||||||||||
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Total | 3,513,094 | �� | $ | 26.08(3) | 2,501,625(4) | 2,470,906 | $ | 31.18 | (3) | 1,321,057 | (4) | |||||||||||||
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| (1) | All numbers in these columns refer to shares of Hexcel common stock. |
| (2) | Includes |
| (3) | Excludes the RSUs and PSAs referred to in note 2 above because they have no exercise price. |
| (4) |
Hexcel Corporation | 57 |
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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 ten 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 2017, as described below.
Measurement Date
We identified the median employee using our employee population as of October 1, 2017. As of that date, we had approximately 5,734 employees (excluding employees of acquired entities as explained below).
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 as of the measurement date for the nine months ending September 30, 2017, which, for permanent employees, we then annualized. We believe this methodology reasonably reflects the annual
compensation of our employees. Total Cash Compensation includes 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 retirement and benefit plans). We converted the amount of compensation paid tonon-U.S. employees to U.S. dollars using our Corporate Treasury Department’s Plan Rates, which are average actual “forward” rates for the 12 months ending December 31, 2017. As permitted by SEC regulations, we excluded from the determination of our median employee approximately 95 employees of entities we acquired in 2017, including approximately 72 employees of Structil S.A. (acquired on October 2, 2017) and approximately 23 employees of the Aerospace & Defense Business of Oxford Performance Materials, Inc. (acquired on December 15, 2017).
Pay Ratio
The pay ratio was calculated in a manner consistent with Item 402(u) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and we believe it constitutes a reasonable estimate. However, as contemplated by Item 402(u), we relied on methods and assumptions that we determined to be appropriate for calculating the pay ratio at Hexcel. Other public companies will use methods and assumptions that differ from the ones we chose but are appropriate for their circumstances. It may therefore be difficult, for this and other reasons, to compare our reported pay ratio to pay ratios reported by other companies.
Our median employee total annual compensation was $59,482. Our CEO’s total annual compensation was $7,016,765. Therefore, our CEO to median employee pay ratio is 117.96 to 1.
58 | Hexcel Corporation | 2018 Proxy Statement |
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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 Board of Directors, which is available at 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 2016,2017, held numerous discussions with management and met in executive session, without management, with Ernst & Young LLP, our independent
registered public accounting firm for 2016.2017. 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 our audited consolidated financial statements in the Annual Report on Form10-K for the year ended December 31, 2016 filed2017 for filing with the SEC.Securities and Exchange Commission.
Jeffrey C. Campbell, Chair
Lynn Brubaker
Cynthia M. Egnotovich
David C. HillW. Kim Foster
The Members of the Audit Committee
PROPOSAL 4—RATIFICATION OF SELECTION OF INDEPENDENT
Hexcel Corporation | 2018 Proxy Statement | 59 |
REGISTERED PUBLIC ACCOUNTING FIRM
|
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 2017.2018. Stockholder ratification of the appointment of EY is not required under our Restated Certificate of Incorporation, or Amended and Restated Bylaws or 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 2018 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.
Change in Auditor
PwC served asstockholders present at 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.meeting.
The following table shows the aggregate fees for professional services rendered for the company by each of EY and PwC, for fiscal 20162017 and 2015,2016, respectively:
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2017 | 2016 | |||||||||||||
Audit fees(1) | $ | 2,487,000 | $ | 2,662,000 | $ | 2,994,000 | $ | 2,487,000 | ||||||||
Audit-related fees(2) | — | 15,000 | 150,000 | — | ||||||||||||
Tax-related fees(3) | 754,000 | 1,192,000 | 90,000 | 754,000 | ||||||||||||
All other fees(4) | 27,000 | 3,000 | 25,000 | 27,000 | ||||||||||||
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Total | $ | 3,268,000 | $ | 3,872,000 | $ | 3,259,000 | $ | 3,268,000 | ||||||||
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| (1) | Audit fees relate to professional services rendered in connection with the audit of our annual financial statements and review of the financial statements included in our Forms10-Q and 10-K and services provided in connection with foreign statutory and regulatory filings. |
| (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. For |
| (4) | All other fees relate to assistance with |
Audit CommitteePre-Approval Policies and Procedures
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 EYErnst & Young LLP 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 2018 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 VOTEFOR THE RATIFICATION OF THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP
60 | Hexcel Corporation | 2018 Proxy Statement |
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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:
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
| ◾ | 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 |
the benefits to us
| ◾ | the benefits to us |
| ◾ | the availability of other sources for the product or service that is the subject of the transaction |
the availability of other sources for the product or service that is the subject of the transaction
| ◾ | the timing of the transaction |
the timing of the transaction
| ◾ | the potential impact of the transaction on a director’s independence |
the potential impact of the transaction on a director’s independence
any other factors deemed relevant
| ◾ | any other factors deemed relevant |
The company had no related person transactions since the beginning of 2016,2017, 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 a 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 that he or she reasonably believed to be in the best interest of our company.
Hexcel Corporation | 2018 Proxy Statement | 61 |
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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, based solely on a review of the copies of such reports furnished to us and representations that no other reports were required, for the year ended December 31, 2016,2017, all Section 16(a) filing requirements applicable to our executive officers, directors and greater than ten percent stockholders were complied with.
As of the date of this proxy statement, the board of directors does not know of any other matters to be presented for action by the stockholders at the 2018 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.
Stockholder proposals intended for inclusion in our proxy materials for the 20182019 annual meeting of stockholders pursuant to Rule14a-8 under the Exchange Act must be submitted in writing not later than November 17, 2017 to us, in care of the Corporate Secretary, at Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901-3238.06901, must be received by us no later than November 16, 2018 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 20182019 annual meeting of stockholders be submitted, in accordance with the requirements of our Bylaws, and received by us not later than January 4, 20183, 2019 in order to be considered timely. Stockholders are also advised to review our Bylaws, which contain additional requirements about advance notice of stockholder proposals and director nominations. We may exclude untimely proposals from our 2018 proxy statement. Management proxies will have discretionary authority to vote on the subject matter of the excluded proposal if otherwise properly brought before the annual meeting.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
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.for the 2019 Annual Meeting.
Our Annual Report to Stockholders containing the company’s audited consolidated financial statements for the year ended December 31, 2016,2017, is being mailed herewith to all stockholders of record. Additional copies are available without charge on request. Requests should be addressed to the Corporate Secretary,Vice
President, Investor Relations, Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut, 06901-3238.06901.
Stamford, Connecticut
March 17, 2017
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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~ TO VOTE BY MAIL, PLEASE DETACH HERE ~
ANNUAL MEETING OF STOCKHOLDERS OF
HEXCEL CORPORATION
May 4, 2017
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The Notice of Meeting, proxy statement and proxy card
are available at http://phx.corporate-ir.net/phoenix.zhtml?c=75598&p=proxy
Please sign, date and mail
your proxy card in the
envelope provided as soon as possible.
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62 | ||||||
Hexcel Corporation | 2018 Proxy Statement |
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ANNEX 1
Reconciliation of Adjusted EPS to GAAP EPS:
| Year Ended December 31, | ||||||||
| (All in millions, except earnings per share) | 2017 | 2016 | ||||||
GAAP net income | $ | 284.0 | $ | 249.8 | ||||
Non-operating expense, net of tax(1) | — | 0.3 | ||||||
Discrete tax benefits(2) | (15.6 | ) | (6.6 | ) | ||||
Tax Reform(3) | (22.1 | ) | — | |||||
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Adjusted net income(Non-GAAP) | $ | 246.3 | $ | 243.5 | ||||
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Diluted Shares (GAAP) | 91.9 | 94.2 | ||||||
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Earnings per Share (GAAP) | $ | 3.09 | $ | 2.65 | ||||
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Adjusted Earnings per Share(Non-GAAP) | $ | 2.68 | $ | 2.58 | ||||
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| (1) | Non-operating expense, net of tax, in 2016 was primarily for the accelerated amortization of deferred financing costs related to repaying our term loan and refinancing our revolving credit facility in June 2016. |
| (2) |
| (3) |
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 excluding special items. 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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A-1
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HEXCEL CORPORATION Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901 PROXY FOR ANNUAL MEETING OF STOCKHOLDERS To be held on May 3, 2018 This Proxy is Solicited by the Board of Directors of Hexcel Corporation The undersigned stockholder of Hexcel Corporation (Hexcel) hereby appoints Nick L. Stanage, Patrick J. Winterlich and Gail E. Lehman and each of them, the lawful attorneys and proxies of the undersigned, each with powers of substitution, to vote all shares of Common Stock of Hexcel held of record by the undersigned on March 9, 2018 at the Annual Meeting of Stockholders (the Annual Meeting) to be held at the Community Room, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut, on May 3, 2018 at 10:30 a.m., local time, and at any and all adjournments or postponements thereof, with all the powers the undersigned would possess if personally present, upon all matters set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement dated March 16, 2018, receipt of which is hereby acknowledged. (Continued and to be signed on the reverse side) P R O X Y 5TO VOTE BY MAIL, PLEASE DETACH HERE5 ANNUAL MEETING OF STOCKHOLDERS OF HEXCEL CORPORATION May 3, 2018 NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of Meeting, proxy statement and proxy card are available athttp://phx.corporate-ir.net/phoenix.zhtml?c=75598&p=proxy Please sign, date and mail your proxy card in the envelope provided as soon as possible.
Date: , 2018 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. 2. Advisory vote to approve 2017 executive compensation 3. Ratification of Ernst & Young LLP as Independent Registered Public Accounting Firm 4. 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. 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. PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
~ TO VOTE BY MAIL, PLEASE DETACH HERE~HERE5 PLEASE MARK VOTES AS IN THIS EXAMPLE X 1. Election of directors (check one box only): 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 David L. Pugh Catherine A. Suever THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF ALL NOMINEES FOR DIRECTOR AND “FOR” PROPOSALS 2 AND 3. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN