| | ✓ | Strongly independent Board (9(10 of 1112 Directors are independent); |
✓ | ✓ | Independent Chairman of the Board and Lead Director; |
✓ | ✓ | Declassified Board – all Directors are elected annually; |
✓ | ✓ | Annual Board, Committee and Director evaluations; |
✓ | ✓ | Commitment to Board refreshment and diversity – 45 new independent Directors since 2014; |
✓ | | Proactively adopted shareholder✓ | Shareholder proxy access in 2016 with 3/3/20/20 parameters; |
✓ | ✓ | Majority Voting Policy that requires any Director who fails to receive a majority of the votes cast in favor of his or her election to submit his or her resignation to the Board; |
✓ | ✓ | Over-boarding policy limits the number of public company boards a Director can serve on; |
✓ | ✓ | Special Meetings may be called by shareholders holding 25% of the Company’s common shares; |
✓ | ✓ | “Clawback” policy permits claw-backclawback of executive compensation if an executive engages in conduct that is detrimental to the Company; and |
✓
| | ✓ | Stock ownership requirements for Directors and executive officers. |
Additional information about the Company’s corporate governance structure and practices can be found in the Board of Directors General Policies and Procedures, our Amended Regulations and our Amended Articles of Incorporation.
Risk Oversight
The Board of Directors primarily relies on its Audit Committee for oversight of the Company’s risk management. The Audit Committee regularly reviews issues that present particular risks to the Company, including those involving competition, customer demands, economic conditions, planning, strategy, finance, sales and marketing, product technology, innovation, information technology and cybersecurity, facilities and operations, supply chain and legal matters. The full Board also reviews these issues as appropriate. The Board believes that this approach, supported by our leadership structure, provides appropriate checks and balances against undue risk taking.
Shareholder Communications
Shareholders or interested parties may send communications to the Board of Directors, to any standing committee of the Board, or to any Director, in writing c/o The Timken Company, 4500 Mt. Pleasant Street NW, North Canton, Ohio 44720. Shareholders or interested parties also may submit questions, concerns or reports of misconduct through the Timken Helpline at1-800-846-5363 and may remain anonymous. Communications received may be reviewed by the office of the General Counsel to ensure appropriate and careful review of the matter.
BENEFICIAL OWNERSHIP OF COMMON STOCKSHARES
The following table shows, as of January 2, 2017,1, 2018, the beneficial ownership of our common shares by each Director, nominee for Director and executive officer named in the 20162017 Summary Compensation Table on page 3648 of this Proxy Statement, and by all Directors, nominees for Director and executive officers as a group. Beneficial ownership of our common shares has been determined for this purpose in accordance with Rule13d-3 under the Securities Exchange1934 Act of 1934 and is based on the sole or shared power to vote or direct the voting or to dispose or direct the disposition of our common shares. Beneficial ownership as determined in this manner does not necessarily bear on the economic incidents of ownership of our common shares.
| Amount and Nature of Beneficial Ownership of Common Stock | |
Amount and Nature of Beneficial Ownership of Common Shares | | Amount and Nature of Beneficial Ownership of Common Shares |
| | |
| Name | | Sole Voting or Investment Power(1) | | Shared Voting or Investment Power | | Aggregate Amount(1) | | Percent of Class | | Sole Voting or Investment Power(1) | | Shared Voting or Investment Power | | Aggregate Amount(1) | | Percent of Class |
| | | | | | | | | |
| William R. Burkhart | | 105,828 | | 0 | | 105,828 | | * | | | 17,315 | | | 0 | | | | 17,315 | | | * | |
| Carolyn E. Cheverine | | | | 0 | | | 0 | | | | 0 | | | * | |
| Christopher A. Coughlin | | 212,072 | | 0 | | 212,072 | | * | | | 263,582 | | | 0 | | | | 263,582 | | | * | |
| Maria A. Crowe | | 8,987 | | 0 | | 8,987 | | * | | | 11,750 | | | 0 | | | | 11,750 | | | * | |
| Philip D. Fracassa | | 100,551 | | 0 | | 100,551 | | * | | | 129,526 | | | 0 | | | | 129,526 | | | * | |
| Elizabeth A. Harrell | | | | 2,000 | | | 0 | | | | 2,000 | | | * | |
| Richard G. Kyle | | 357,238 | | 0 | | 357,238 | | * | | | 491,807 | | | 0 | | | | 491,807 | | | * | |
| John A. Luke, Jr. | | 55,915 | | 0 | | 55,915 | | * | | | 59,159 | | | 0 | | | | 59,159 | | | * | |
| Christopher L. Mapes | | 10,540 | | 0 | | 10,540 | | * | | | 13,050 | | | 0 | | | | 13,050 | | | * | |
| Ronald J. Myers | | 42,813 | | 0 | | 42,813 | | * | | | 45,420 | | | 0 | | | | 45,420 | | | * | |
| James F. Palmer | | 5,585 | | 0 | | 5,585 | | * | | | 8,095 | | | 0 | | | | 8,095 | | | * | |
| Ajita G. Rajendra | | 8,630 | | 0 | | 8,630 | | * | | | 11,140 | | | 0 | | | | 11,140 | | | * | |
| Joseph W. Ralston | | 49,763 | | 0 | | 49,763 | | * | | | 53,131 | | | 0 | | | | 53,131 | | | * | |
| Frank C. Sullivan | | 42,422 | | 0 | | 42,422 | | * | | | 44,932 | | | 0 | | | | 44,932 | | | * | |
| John M. Timken, Jr. | | 587,585(2) | | 851,899 | | 1,439,484(2) | | 1.86% | | | | 589,095 | (2) | | 911,899 | | | | | 1,500,994 | (2) | | 1.93 | % |
| Ward J. Timken, Jr. | | 1,060,940 | | 5,062,754 | | 6,123,694 | | 7.90% | | | 949,462 | | | 5,043,854 | | | | 5,993,316 | | | 7.71 | % |
| Jacqueline F. Woods | | 18,018 | | 0 | | 18,018 | | * | | | 19,228 | | | 0 | | | | 19,228 | | | * | |
| All Directors, nominees for Director and executive officers as a group(3) | | 2,666,887 | | 5,914,653 | | 8,581,540 | | 11.08% | | | | 2,708,692 | | | | 5,955,753 | | | | | 8,664,445 | | | | 11.15 | % |
* Percent of class is less than 1%.
(1) The following table provides additional details regarding beneficial ownership of our common shares:
(1) | The following table provides additional details regarding beneficial ownership of our common shares: |
| | Name | | Outstanding Options and Time-based Restricted Stock Units (a) | | Vested Deferred Restricted Shares(b) | | Deferred Common Shares (b) | | Outstanding Options and Time- based Restricted Stock Units(a) | | Vested Deferred Restricted Shares (b) | | Deferred Common Shares(b) |
| William R. Burkhart | | 74,630 | | 0 | | 0 | | | 0 | | | | 0 | | | | 0 | |
| Carolyn E. Cheverine | | | | 0 | | | | 0 | | | | 0 | |
| Christopher A. Coughlin | | 165,398 | | 0 | | 0 | | | 189,267 | | | | 0 | | | | 0 | |
| Maria A. Crowe | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | | | 0 | |
| Philip D. Fracassa | | 78,680 | | 0 | | 0 | | | 94,436 | | | | 0 | | | | 0 | |
| Elizabeth A. Harrell | | | | 0 | | | | 0 | | | | 0 | |
| Richard G. Kyle | | 313,637 | | 0 | | 0 | | | 408,574 | | | | 0 | | | | 0 | |
| John A. Luke, Jr. | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | | | 0 | |
| Christopher L. Mapes | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | | | 0 | |
| Ronald J. Myers | | 30,355 | | 0 | | 0 | | | 30,774 | | | | 0 | | | | 0 | |
| James F. Palmer | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | | | 0 | |
| Ajita G. Rajendra | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | | | 0 | |
| Joseph W. Ralston | | 0 | | 0 | | 12,000 | | | 0 | | | | 0 | | | | 12,000 | |
| Frank C. Sullivan | | 0 | | 2,000 | | 0 | | | 0 | | | | 2,000 | | | | 0 | |
| John M. Timken, Jr. | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | | | 0 | |
| Ward J. Timken, Jr. | | 614,600 | | 0 | | 0 | | | 485,700 | | | | 0 | | | | 0 | |
| Jacqueline F. Woods | | 0 | | 0 | | 2,500 | | | 0 | | | | 0 | | | | 2,500 | |
| (a) | Includes shares that the individual named in the table has the right to acquire on or before March 2, 20171, 2018 through the exercise of stock options or the vesting of time-based restricted stock units pursuant to the Long-Term Incentive Plan. Including those listed, all Directors, nominees for Director, and executive officers as a group have the right to acquire 1,277,3001,208,751 shares on or before March 2, 20171, 2018 through the exercise of stock options or the vesting of time-based restricted stock units pursuant to the Long-Term Incentive Plan. These shares have been treated as outstanding for the purpose of calculating the percentage of the class beneficially owned by such individual or group, but not for the purpose of calculating the percentage of the class owned by any other person. |
| (b) | Awarded as annual grants under the Long-Term Incentive Plan, which will not be issued until a later date under the Director Deferred Compensation Plan. Restricted shares can no longer be deferred. |
| (2) | Includes 197,886 shares for which John M. Timken, Jr. has sole voting and investment power as trustee of three trusts created as the result of distributions from the estate of Susan H. Timken. |
| (3) | The number of shares beneficially owned by all Directors, nominees for Director and executive officers as a group has been calculated to eliminate duplication of beneficial ownership. This group consists of 1517 individuals. |
The following table gives information known to us about each beneficial owner of more than 5% of our common shares as of January 2, 2017,1, 2018, unless otherwise indicated below.
| | Beneficial Owner | | Number of Shares | | Percent of Class | | Number of Shares | | Percent of Class |
| Timken family(1) | | 9,435,213 | | 12.18% | | | 9,326,059 | | | | 12.00 | % |
| The Vanguard Group(2) | | 5,942,053 | | 7.63% | | | 6,401,062 | | | | 8.29 | % |
First Eagle Investment Management, LLC(3) | | 5,430,139 | | 6.98% | |
BlackRock, Inc.(4) | | 5,355,658 | | 6.90% | |
Southern Sun Asset Management LLC(5) | | 4,886,967 | | 6.28% | |
| BlackRock, Inc.(3) | | | | 5,734,858 | | | | 7.40 | % |
| Southern Sun Asset Management LLC(4) | | | | 4,187,069 | | | | 5.39 | % |
| (1) | Members of the Timken family, including John M. Timken, Jr., and Ward J. Timken, Jr., have in the aggregate sole or shared voting and dispositive power with respect to 9,435,2139,811,759 of our common shares, which includes 614,600485,700 shares that Ward J. Timken, Jr., has the right to acquire on or before March 2, 2017.1, 2018. The Timken Foundation of Canton (the “Foundation”), 200 Market Avenue North, Suite 210, Canton, Ohio 44702, holds 5,000,9444,982,044 of these shares, representing 6.46%6.41% of our outstanding common shares. Ward J. Timken, Joy A. Timken, Ward J. Timken, Jr., and William R. Timken, Jr. are trustees of the Foundation and share the voting and investment power with respect to such shares. |
There are no voting agreements or other arrangements among the members of the Timken family regarding the 9,435,2139,811,759 common shares and, accordingly, the members of the Timken family shall not be deemed a “group” for purposes of Rule13d-3 under the Securities Exchange1934 Act of 1934 with respect to such shares. Accordingly, each member of the Timken family disclaims beneficial ownership of any of our common shares as to which such member does not have sole or shared voting or investment power.
| (2) | A Schedule 13G/A filed with the SEC on February 10, 2017,9, 2018, by The Vanguard Group, 100 Vanguard Blvd., Malvern, Pennsylvania 19355, indicated that it has sole voting power over 41,57636,886 shares, sole investment power over 5,895,9776,401,062 common shares and aggregate beneficial ownership of 5,942,0536,440,867 common shares. |
| (3) | A Schedule 13G filed with the SEC on February 7, 2017, by First Eagle Investment Management, LLC, 1345 Avenue of the Americas, New York, New York 10105, indicated that it has sole voting
|
| power over 5,240,002 common shares and the sole investment power over 5,430,139 common shares. |
| (4) | A Schedule 13G/A filed with the SEC on January 26, 2017,23, 2018, by BlackRock, Inc., 55 East 52nd Street, New York, New York 10055, indicated that it has sole voting power over 5,086,6185,446,531 common shares and sole investment power over 5,355,6585,734,858 common shares. |
| (5)(4) | A Schedule 13G filed with the SEC on February 14, 2017,2018, by SouthernSunSouthern Sun Asset Management LLC, 6070 Poplar Avenue,175 Toyota Plaza, Suite 300,800, Memphis, TN 38119,38103, indicated that it has sole voting power over 4,626,0163,877,815 common shares and the sole investment power over 4,886,9674,187,069 common shares. |
PROPOSAL NO. 2: SHAREHOLDER ADVISORY VOTE TO
APPROVE OUR NAMED EXECUTIVE OFFICER
COMPENSATION
We believe that our compensation programs for our named executive officers:
| ● | | align the interests of executive management with those of our shareholders; |
| ● | | reward executive management for sustained, strong business and financial results; and |
| ● | | enable us to attract, retain and motivate the best talent. |
As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the 1934 Act, we are asking you to approve, on an advisory(non-binding) basis, the following resolution at our 2018 Annual Meeting of Shareholders:
RESOLVED, that the compensation of the named executive officers as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and any related material disclosed in this Proxy Statement, is hereby APPROVED.
As an advisory vote, this resolution is not binding on us. However, the Compensation Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by our shareholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for our named executive officers. We currently are conducting this advisory vote, commonly known as a“say-on-pay” vote, every year and expect to hold the nextsay-on-pay vote in connection with our 2019 Annual Meeting of Shareholders.
The affirmative vote of a majority of the votes cast on this matter is necessary for approval of this resolution. Abstentions and brokernon-votes will not be counted for determining whether this resolution is approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR APPROVAL, ON AN ADVISORY BASIS, OF OUR NAMED EXECUTIVE OFFICER COMPENSATION.
COMPENSATION DISCUSSION AND ANALYSIS
TABLE OF CONTENTS
Executive Summary
OurThis section provides a summary of our executive compensation programsprogram, key compensation decisions, and performance targets and results for our incentive plans in which our named executive officers participated for the year ending December 31, 2017. For 2017, our named executive officers (or “NEOs”) were:
| ● | | Richard G. Kyle, President and CEO |
| ● | | Philip D. Fracassa, Executive Vice President, Chief Financial Officer |
| ● | | Christopher A. Coughlin, Executive Vice President, Group President |
| ● | | Carolyn E. Cheverine, Executive Vice President, General Counsel and Secretary |
| ● | | Ronald J. Myers, Executive Vice President, Human Resources |
| ● | | William R. Burkhart, former Executive Vice President, General Counsel and Secretary |
Ms. Cheverine was hired as our new Executive Vice President, General Counsel and Secretary effective as of May 30, 2017. Mr. Burkhart resigned from his position as Executive Vice President, General Counsel and Secretary effective as of May 29, 2017 and remained employed by the Company as an advisor until August 11, 2017.
Executive Compensation Philosophy
We design our executive compensation plans and program to help us attract, motivate, reward and retain highly qualified executives who are designed to rewardcapable of creating and sustaining value for our executives for delivering exceptional performance and building shareholder value.shareholders over the long term. The structure of our programs enables us to provide a competitive total rewardscompensation and benefits package while aligning senior executive interests towith those of our shareholders. The following chart highlights the key considerations behind the development, review and approval of the compensation for our executive officers named in the 2016 Summary Compensation Table (our named executive officers, or “NEOs”):NEOs:
| | |
| |
Objectives | | Our executive compensation program is designed to: |
| ● | | Align the interests of our executives and shareholders |
| ● | | Reward for sustained, strong business results |
| ● | | Attract, retain and motivate the best talent |
| |
Philosophy | | Our executive compensation philosophy is built on the following principles: |
| ● | | Recognizing that people are our most important asset |
| ● | | Rewarding results linked to both short- and long-term performance(pay-for-performance) |
| ● | | Positioning our pay affordably and competitivelyto be competitive in the marketplace |
| ● | | Driving a A focus on increasing shareholder value
|
20162017 Performance
Despite challenging markets in 2016, the Company delivered strong performance and advanced its strategy, which remains focused on outgrowing markets, driving operational excellence initiatives and deploying capital effectively.
| | | | |
TheTimken performed well in 2017, both year-over-year and as compared against the global bearing industry and its industrial peers. We profitably grew the Company ended 2016 with sales of $2.7 billion and net incomein 2017, increasing revenue 12.5% to $3 billion. We achieved earnings per diluted share of $1.92. We generated net cash$2.58 and adjusted earnings per diluted share of $2.632, up approximately 45% and approximately 23%, respectively, from operations of $402 million in 2016 (up from $375 million in 2015), and returned approximately $82 million through dividends to our shareholders. In addition, we repurchased 3.1 million shares, or nearly four percent of our outstanding shares.the prior year.
We took stepsachieved these results through the disciplined execution of our strategy, which is focused on driving organic growth in our core business by leading in product technology, innovation and customer service; improving our business performance and expanding margins through operational excellence initiatives; and deploying our cash flow and capital to advance DeltaX, a multi-year initiative designed to accelerate product development and productdrive strong returns for our investors. | |
|
In 2017, we strengthened our global leadership position in tapered roller bearings and grew our offering in industrial bearings. We also significantly expanded our mechanical power transmission portfolio and geographic reach, completing three acquisitions during the year. The acquisitions of Torsion Control Products, Groeneveld Group and PT Tech advanced our position in industrial couplings and lubrication systems and introduced industrial clutches and brakes to the Timken portfolio. Our majority-owned subsidiary, Timken India Ltd., also entered into a definitive agreement to acquire ABC Bearings Ltd. to strengthen our position in the growing India bearing market. This transaction is expected to close in the first half of 2018.
2 | SeeAppendix A for reconciliation of adjusted EPS to its most comparable GAAP equivalent. |
line expansion, with new applicationsOur commitment to creating long-term shareholder value is reflected in our disciplined approach to capital allocation. In 2017, the Company generated net cash from operations of $236.8 million and products as well as additional sales and engineering resources. We drove operational performance with $100returned approximately $83 million through dividends. In addition, we repurchased nearly 1 million shares, or approximately 1.2% of our outstanding shares; invested approximately $105 million in costs savingscapital expenditures to grow and advancedimprove our manufacturing footprint. And we acquiredbusiness; and spent approximately $350 million on three acquisitions. The approach has created shareholder value by delivering a TSR of 26.8% in 2017, higher than the EDTS&P 500 index and Lovejoy businesses.
The increase inonly slightly below our stock price during 2016 resulted in a total shareholder return of 43.2% forpeer median over the year (2.9%, 10.0%, and 9.1% over three, five and tensame period. Over the past 10 years, respectively).
Despite this strong performance, results did not meetour average annual TSR exceeds both the goals set forth in our compensation plans. Our performance, as measured by the financial and operational metrics discussed in this CD&A, resulted in incentive plans for our named executive officers paying below target levels. See page 29 for details on annual incentive award decisions, and the “2016 Long-Term Incentive Decisions” section on page 31 for details on long-term incentive award payouts. Overall, executive compensation for 2016 reflects our compensation objectivesS&P 500 index and our operating performance, demonstrating a long-standing commitment to paypeer median. Additionally, we increased and paid out our executives based upon382nd consecutive quarterly dividend, continuing one of the performance they deliver.longest active streaks on the NYSE. We also improved our ROIC year-over-year.
*Total Shareholder Return for the Company was calculated on an annualized basis, assumes quarterly reinvestment of dividends and takes into account the value of TimkenSteel common shares distributed in the Spinoff on June 30, 2014.Spinoff.
**See page 2532 for the companies that are included in the compensation peer group for 2016.2017.
Our above-target annual cash incentive compensation plan payout for 2017 reflects Timken’s accomplishments and strong performance for the year, as measured by the financial and operational metrics discussed throughout the Compensation Discussion & Analysis (“CD&A”). Our below-target payout for 2015-2017 performance-based restricted stock units reflects challenging markets and below target performance in 2015 and 2016, partially offset by improved performance in 2017. See page 38 for details on annual cash incentive award decisions, and the“2017 Long-Term Incentive Decisions” section on page 40 for details on long-term incentive award payouts. Overall, executive compensation for 2017 reflects our compensation objectives and our strong operating performance, demonstrating a long-standing commitment to pay our executives based upon the performance they deliver.
2017 Compensation Decisions and Actions
| | |
| |
Factors Guiding Our Decisions (see page 2633 for details) | | ● | | Executive compensation program objectives and philosophy |
| ● | | Financial performance |
| ● | | Recommendations of the CEO recommendations for other NEOs
|
| | ● | | Assessment of risk management, including avoidance of unnecessary or excessive risk taking to ensure long-term shareholder value |
| | ● | | Shareholder input including“say-on-pay” vote |
| | ● | | Advice of independent outside compensation consultant |
| | ● | | Market pay practices ● Current and historical compensation |
| | ●
| | Current and historical compensation
|
| | | | |
Program Updates Implemented at the Beginning of 20162017 | | Adoption of Compensation Peer Group
Beginning in 2016, the Compensation Committee used compensation data from a newly-defined peer group in conjunction with broad general industry survey data when evaluating the competitiveness of the Company’s pay programs and making decisions on compensation levels.
|
Key 2016 Compensation Decisions
(see page 28 for details)
| | The compensation decisions outlined below demonstrate our strong, sustained commitment to paying for performance.
Base Salary
|
| ● | | CEO: Mr. Kyle did not receive a base salary increase in 2016. His last base salary increase was in May 2014 to reflect his appointment as President and CEO.
|
| | ● | | Other NEOs: Mr. Myers was named Vice President, Human Resources in June 2016. In recognition of his new role, he received a base salary increase of 7% in June 2016. None of the other NEOs received a base salary increase in 2016.
|
| | Annual Incentive
Based on the Company’s 2016 performance, annual incentive awards were paid at 48% for the NEOs, reflecting below-target performance for this time period and the exercise of negative discretion by the Compensation Committee to align incentive payments for the NEOs with the payouts under the Company’s broad-based annual incentive plan. For additional details, see the “Annual Incentive” section on page 29.
|
| | Long-Term Incentives
The NEOs received target grants of nonqualified stock options, time-based restricted stock units and performance-based restricted stock units in 2016, with values ranging from approximately $260,000 to $4.2 million.
|
2017 Program Updates
| | 2017 Compensation Peer Group For fiscal year 2017, we removed Lincoln Electric Holdings, Inc. (“Lincoln Electric”) and Joy Global Inc. (“Joy Global”) from our compensation peer group and replaced them with Carlisle Companies Incorporated and Dana Incorporated. Joy Global was removed due to the announcement that it was expected towould be acquired by Komatsu Ltd. and Lincoln Electric was removed because Mr. Mapes, a member of our Compensation Committee, is the Chairman, President and Chief Executive Officer of Lincoln Electric. Stock Ownership Guidelines To better align with common market practice, as of January 1, 2017, the design of the share ownership requirement was revised so that an individual needs to hold a multiple of the cash retainer for Directors and a multiple of base salary for NEOs.NEOs (rather than a fixed share ownership requirement). |
| |
Key 2017 Compensation Decisions (see page36 for details) | | The compensation decisions outlined below demonstrate the multiple factors guiding our compensation decisions. Base Salary ●CEO: Mr. Kyle did not receive a base salary increase in 2017. His last base salary increase was in May 2014 to reflect his appointment as President and CEO of the Company. ●Other NEOs: Mr. Fracassa received a base salary increase of 3% in March 2017. Mr. Myers was appointed to Executive Vice President, Human Resources in November 2017 and he received base salary increases totaling 20% in 2017 to align him more closely with the market and to reflect his promotion. Mr. Coughlin and Mr. Burkhart did not receive a base salary increase in 2017. Ms. Cheverine’s initial base salary was determined by considering market data for her role as well as her past experience. Annual Cash Incentive Based on the Company’s 2017 performance, annual cash incentive awards were paid at 136.8% for the NEOs, reflecting above-target performance for this time period and the exercise of negative discretion by the Compensation Committee to align incentive payments for the NEOs with the payouts under the Company’s corporate annual cash incentive plan. |
| | |
| |
| | For additional details, see the “Annual Cash Incentive” section on page 37. Long-Term Incentives The NEOs received target grants of nonqualified stock options, time-based restricted stock units and performance-based restricted stock units in 2017, with values ranging from approximately $0.4 million to $4.2 million. Performance-based restricted stock units (which are based on ROIC and earnings per share (“EPS”) performance), were earned at 55.2% of target for the 2015-2017 performance period. |
| |
2018 Program Updates | | ● Eliminated the financial planning allowance for NEOs. ● Added earnings before interest and taxes (“EBIT”) margin to the annual cash incentive plan as a third metric to shift weight from quantity of earnings to quality of earnings. ● Shifted weighting from EPS to ROIC in the long-term incentive plan to increase emphasis on return on invested capital. |
CEO PayAt-A-Glance
| | | | | | |
Target pay for 20162017 for Mr. Kyle was determined by the Compensation Committee after consideration of the factors described below under“Determining Compensation for 2016.2017.”The Compensation Committee considered the total compensation package in relation to the target established for the position, taking into account the scope of responsibilities for the particular position. Further details are provided on page 26.33. | | | | Elements of our executive compensation consist of base salary, annual incentives,cash incentive, long-term incentives that include restricted stock units (time-based and performance-based) and stock options, retirement programs and other benefits. | | |
| | | | |
Aligning Pay with Performance
| | | | | | |
The Company’s success depends largely on the contributions of motivated, focused and energized employees all working to achieve our strategic and financial objectives. This understanding shapes our approach to providing a competitive total rewardscompensation and benefits package to our CEO and the other named executive officers. Pay-for-performance is one of the four principles that make up our executive compensation philosophy. To ensure that we are adhering to this principle, we evaluate the degree of alignment of our total incentive compensation to our business results, including the level of adjusted earnings before interestEBIT, ROIC and taxes (“EBIT”), return on invested capital (“ROIC”) and adjusted earnings per share (“EPS”), as well asEPS, which we believe are key financial metrics that drive total shareholder return. | | | | The Company’s Approach to Rewarding Performance Annual Cash Incentive ● Reward achievement of short-term individual and corporate performance goals Time-Based Restricted Stock Units and Stock Options ● Reward long-term value creation ● Reinforce ownership in the Company ● Support retention of executives ● Align executive compensation with shareholders Performance-Based Restricted Stock Units ● Reward long-term financial results that drive value creation ● Reinforce ownership in the Company | | ● Align executive compensation with shareholders |
The Company uses a balance of short- and long-term incentives as well as cash andnon-cash compensation to meet these objectives. The elements of executive compensation provided to our NEOs for 20162017 consisted of base salary, annual incentives,cash incentive, long-term incentives including nonqualified
stock options, time-based restricted stock units, and performance-based restricted stock units retirement programs and other employee benefits. Our compensation programs areprogram is designed to link pay and performance.
| ● | | Program Design:85% of the targeted total direct compensation for Mr. Kyle and between64%-77% 63% and 72% of the targeted total direct compensation for the other NEOs is comprised of incentive-based pay. |
| ● | | Performance Assessment:Our Compensation Committee uses a comprehensive and well-defined process to assess Company performance. We believe our metrics focus management on the appropriate objectives for the creation of both short- and long-term shareholder value. |
The Company’s incentive compensation programsprogram for executives areis designed to link compensation with the full spectrum of our business goals, some of which are short-term,short term, while others take several years or more to achieve:
| | | | | | | | |
| | Short-Term (Cash) Annual Incentive* | | Long-Term (Equity) Performance- Based Restricted Stock Units | | Long-Term (Equity) Time-Based Restricted Stock Units Units | | Long-Term (Equity) Nonqualified Stock Options |
| | | | |
Objective | | Short-term operational business priorities | | Long-term strategic financial goals and shareholder value creation | | Long-term shareholder value creation | | Long-term shareholder value creation |
| | | | |
Time Horizon and 2017 Metrics | | Long-term shareholder
value creation
| | Long-term shareholder
value creation
|
Time Horizon
and 2016
Metrics
| | 1 Year 80% Adjusted EBIT 20% Working capital as a percentage of sales | | 3 Years 80% Adjusted EPS 20% ROIC | | 4 Years Year vesting period (1/4 per year) | | 4 Year vesting period (1/4 per year) and 10 Years Year exercise period |
*See “Annual Cash Incentive” section on page 2937 for more details.
Other key features of our executive compensation program include:
| ● | | Stock ownership requirements: Our stock ownership guidelines require all senior executives to meet specific ownership targets based on position. This requirement aligns the interests of our executives to those of our shareholders. See page 3545 for more information. |
| ● | | Clawback provisions: The Company maintains specific provisions regarding the recovery (“clawback”) of awards to deter certain types of conduct, including conduct that could affect the accuracy of the Company’s financial statements. These provisions apply to both short- and long-term incentive programs where, if personal misconduct or any fraudulent activity on the part of the executive leads to the restatement of Company financial results, the Company can clawback an |
| award. In such cases, the Compensation Committee has discretion, based on applicable facts and circumstances, to cause the Company to recover all or any portion of the incentive paid or payable to the executive for some or all of the years covered by the restatement. |
| ● | | Other practices: In recent years, the Company eliminatedgross-ups on perquisites and added double-trigger vesting requirements to “change in control” provisions in severance agreements and equity grants. Double-trigger vesting requires a qualifying termination of employment within a specific period of time after a change in control before severance is paid or equity awards vest in connection with the change in control. |
We also eliminated excise taxgross-ups for new participants in our executive compensation program and discontinued the use of Excess Benefit Agreements under the Supplemental Pension Plan of the Company for new entrants. In 2015, we discontinued excise taxgross-ups in NEO severance agreements. All of our NEOs now have severance agreements without excise taxgross-ups.
Consideration of 20162017Say-on-Pay Vote
In evaluating the design of our executive compensation programs and the specific compensation decisions for each of our NEOs, the Compensation Committee considers shareholder input, including the advisory“say-on-pay” vote at our annual meeting, in addition to other factors. In 2016,2017, over 95.9%97% of the votes cast approved the compensation for our NEOs described in our Proxy Statement for the 20162017 Annual Meeting of Shareholders. Due to the strong level of shareholder support and the absence of specific shareholder concerns, the Compensation Committee determined that no substantive changes to our compensation programs were warranted.
Benchmarking Our 2016 Executive Compensation Program
The Company establishes target compensation levels that are consistent with market practice and internal equity considerations relative to base salaries, annual incentive awards and long-term incentive grants, as well as with the Compensation Committee’s assessment of the appropriate pay element mix for the position.
In order to gauge the competitiveness of its compensation programs, the Company reviewed compensation practices and pay opportunities from general industry survey data, as well as from a selection of publicly-traded peer companies. The Company attempts to position itself to attract and retain qualified senior executives in the face of competitive pressures in its relevant labor markets.
Specifically in 2016, the Company used information regarding the pay practices of general industry companies in the Willis Towers Watson Executive Compensation Database, regressed to the Company’s revenue size. The Company believes that revenue and operational footprint are appropriate indicators of the size and complexity of an organization, which should be reflected in determining compensation levels. The compensation data subjected to this analysis, and not the identity of the individual companies participating in the surveys for this database, was a significant factor considered by the Compensation Committee with respect to its 2016 executive compensation decisions for our NEOs.
Beginning in 2016, the Company also used a compensation peer group as an additional reference point when determining executive compensation. This peer group consisted of a select group ofsimilarly-sized companies that our Compensation Committee believes are representative of the talent market in which we compete and consisted of the following companies for 2016.
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Benchmarking Our 2017 Executive Compensation Program The Company establishes target compensation levels that are consistent with market practice andinternal equity considerations relative to base salaries, annual cash incentive awards and long-termincentive grants, as well as with the Compensation Committee’s assessment of the appropriate payelement mix for the position. In order to gauge the competitiveness of its compensation programs, the Company reviewed compensation practices and pay opportunities from general industry survey data, as well as from a selection of publicly traded peer companies. The Company attempts to position itself to attract and retain qualified senior executives in the face of competitive pressures in its relevant labor markets. Specifically in 2017, the Company used information regarding the pay practices of general industry companies in the WTW Executive Compensation Database, regressed to the Company’s revenue size. The Company believes that revenue and operational footprint are appropriate indicators of the size and complexity of an organization, which should be reflected in determining compensation levels. The compensation data resulting from this analysis was a significant factor considered by the Compensation Committee with respect to its 2017 executive compensation decisions for our NEOs. The Company also used a compensation peer group as an additional reference point when determining executive compensation. The 2017 peer group consisted of a select group of similarly sized companies that our Compensation Committee believes are representative of the talent market in which we compete and consisted of the following companies: |
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Allison Transmission Holdings, Inc. | | Donaldson Company, Inc. | | Nordson Corporation |
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American Axle & Manufacturing Holdings, Inc. Colfax Corporation
Crane Co.
Donaldson Company, Inc.
Flowserve Corporation
IDEX Corporation
ITT Inc.
Joy Global Inc.*
| | Kennametal Inc.
Lincoln Electric Holdings, Inc.*
Meritor, Inc.
NordsonFlowserve Corporation
| | Regal Beloit Corporation |
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Carlisle Companies Incorporated | | IDEX Corporation | | Rexnord Corporation |
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Colfax Corporation | | ITT Inc. | | Trinity Industries, Inc. |
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Crane Co. | | Kennametal Inc. | | Triumph Group, Inc. |
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Dana Incorporated | | Meritor, Inc. | | Westinghouse Air Brake Technologies Corporation |
While the Compensation Committee considered peer group data in determining the general competitiveness of executive compensation, it is only one factor taken into consideration when determining the total compensation for our NEOs. The Compensation Committee also considered other factors listed in “FactorsGuiding Our Decisions” on page 29. |
While the Compensation Committee considered peer group data in determining the competitiveness of executive compensation, it is only one factor taken into consideration when determining the total compensation for our NEOs. The Compensation Committee also considered the other factors listed in “Factors Guiding Our Decisions” on page 20.
* For fiscal 2017, we removed Lincoln Electric and Joy Global from our compensation peer group and replaced them with Carlisle Companies Incorporated and Dana Incorporated. Joy Global was removed due to the announcement that it was expected to be acquired and Lincoln Electric was removed because Mr. Mapes, a member of our Compensation Committee, is the Chairman, President and Chief Executive Officer of Lincoln Electric.
Determining Compensation for 20162017
Role of the Compensation Committee
Each year, the Compensation Committee determines the appropriate level of compensation for our NEOs. As part of this process, the Compensation Committee reviews all of the components of compensation for the NEOs and determines if each individual’s total compensation is reasonable and consistent with the Company’s compensation philosophy. The Compensation Committee reviews each component of compensation individually, references the median (50th) percentile of the competitive market data (25th to 75th percentile) for total direct compensation and, after consideration of additional factors (the(e.g. the executive’s responsibilities, experience level, tenure and performance in the position), may make adjustments to any element of an executive’s compensation in establishing such executive’s total direct compensation.
The Compensation Committee then approves, with any modifications it deems appropriate, base salary ranges, target annual cash incentive award opportunities and long-term incentive grants for the Company’s NEOs. The amount of past compensation realized or potentially realizable has not directly impacted the level at which current and long-term pay opportunities have been set, though the Compensation Committee may consider this information in its deliberations.
In the course of this analysis and development of proposed total compensation packages, Willis Towers Watson,WTW, the Compensation Committee’s external compensation consultant, reviews the relevant information and discusses its findings with the Compensation Committee.
The compensation package for the CEO is determined by the Compensation Committee and approved by the independent members of the Board during executive session.
Role of the CEO and Management
The CEO, in consultation with executive compensation leadership and Willis Towers Watson,WTW, prepares compensation recommendations for the NEOs (other than the CEO) and presents these recommendations to the Compensation Committee. These recommendations are based on the CEO’s personal review of each NEO’sNEOs performance, job responsibilities and importance to our overall business strategy, as well as our compensation philosophy. Although these recommendations are given significant weight, the Compensation Committee retains full discretion when determining compensation for NEOs.
As part of this process, each element of compensation provided to the NEOs is compared to general market data and peer group data and the total compensation package is considered in relation to the target established for the position, taking into account the scope of responsibilities for the particular position. Total direct compensation (base salary, annual cash incentives and long-term incentive grants) also is also evaluated in relation to the total compensation of comparable positions derived from the general market data, peer group data, as well as internal equity considerations.
The compensation package for the CEO is determined by the Compensation Committee and approved by the independent members of the Board during executive session.
Role of the Compensation Consultant
To add rigor in the review process and to inform the Compensation Committee of market trends, the Compensation Committee engages the services of Willis Towers Watson,WTW, an independent executive compensation consultant, to analyze our executive compensation structure and plan designs, and to assess whether the compensation program is competitive and supports the Compensation Committee’s goal to align the interests of executive officers with those of shareholders. Willis Towers WatsonWTW also provides the Compensation Committee with market data, which the Compensation Committee references when determining compensation for executive officers.
In 2016, Willis Towers Watson’s2017, WTW’s primary areas of assistance to the Compensation Committee were:
| ● | | Gathering information related to current trends and practices in executive compensation in response to questions raised by the Compensation Committee and management; |
| ● | | Reviewing information developed by management for the Compensation Committee and providing its input on such information to the Compensation Committee; |
| ● | | Attending and participating in meetings with the Compensation Committee, as well as briefings with the committee chairperson and management prior to meetings; and |
| ● | | Reviewing with management and the Compensation Committee materials to be used in the Company’s Proxy Statement. |
The Compensation Committee has authorized Willis Towers WatsonWTW to interact with the Company’s management, as needed, on behalf of the Compensation Committee.
The Compensation Committee has the sole authoritywith respect to approve the independent compensation consultant’s fees and terms of the engagement. Thus, the Compensation Committee annually reviews its relationship with, and assesses the independence of, Willis Towers Watson to ensure executive compensation consulting independence. The process includes a review of the services Willis Towers Watsonmatters. WTW also provides the quality of those services, and fees associated with the services during the fiscal year. During fiscal year 2016, Willis Towers Watson received $200,000 for the executive compensation consulting services it provided to the Compensation Committee. Other professional consulting services provided by Willis Towers Watson to our Company totaled approximately $2.3 million for actuarial, pension administration and other services to us and our benefit plans (including health benefits, broad-based compensation, human capital and international consulting). Of the $2.3 million in fees incurred in 2016 for other professional consulting services, approximately $0.6 million relatedCompany, which are unrelated toone-time costs incurred in connection with the purchase of a group annuity contractwork that WTW provides to the Compensation Committee. The WTW consultants who advise the Compensation Committee are different from the WTW employees who perform work for the payment and administration of future pension benefits for certain retirees and for administration relatedCompany in other areas. In order to a lump sum pension benefit offering, and approximately $1.5 million relatedmaintain independence, WTW has adopted internal safeguards to retirement consulting and outsourcing pension administrative services. Theensure that its executive compensation unit, which provides support to the Compensation Committee, has also consideredis maintained separately from its other business units, which provides advice to the Company’s management. For more information regarding fees paid to WTW by the Company in 2017 and assessed all relevant factorsthe Compensation Committee’s assessment that could give rise to a potentialthere is no conflict of interest with respect toin the work performed by Willis Towers Watson. Based on this review,WTW with respect to executive compensation, see page 18 of the Compensation Committee did not identify any conflict of interest raised by the work performed by Willis Towers Watson.Proxy Statement.
Key Elements of the Executive Compensation Program
Key Elements of Our 2016 Total Rewards Program
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| | Link to Program Objectives | | Type of Compensation
| | Type of Compensation | | Key Features |
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Base Salary | | A standard compensation element in executive compensation packages, offering market competitive fixed compensation to attract and retain talent. | | Cash
| | Cash | | Provides a stable source of income. |
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Annual Cash Incentive | | A cash-based award that encourages executives to focus on specific annual corporate performance goals. | | Cash
| | Cash | | Target incentive opportunity is set as a percentage of base salary and is grantedpaid out only if threshold performance levels are met. |
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Long-Term Incentive:Nonqualified Stock Options | | Helps ensure that executive pay is directly linked to the achievement of the Company’s long-term objectives and promotes retention. | | Long-Term
Equity
| | Long-Term Equity | | Four-year vesting andten-year exercise period; NEOs holding nonqualified stock options will only receive greater value if the stock price rises. |
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Long-Term Incentive: Performance-Based Restricted Stock Units | | Links compensationRequires achievement of executives totarget financial and operating metrics that further align the building of long-term shareholder value, balances short-term operating focus, and aligns the long-term financial interests of executive managementour executives with those of our shareholders.shareholders and links compensation to building long-term shareholder value.
| | Long-Term Equity | | Designed to reward executives for attainment of specified long-term corporate performance goals; value is linkeddelivered in equity to stock price.align with shareholder experience. Cumulative dividend equivalents are paid in cash based on the actual number of shares delivered at the end of the three-year performance cycle. |
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Long-Term Incentive: Time-Based Restricted Stock Units | | Rewards long-term shareholder value creation, enhances executive stock ownership and promotes retention. | | Long-Term Equity | | Four-year time vesting; value is linkeddelivered in equity to stock price.align with shareholder experience. Cumulative dividend equivalents are paid in cash upon vesting. |
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Retirement Benefits | | An element of a total rewardsour benefits program that helps attract and retain executive talent. | | Benefit | | NEOs receive retirement benefits through several plans: |
| | | | ● | | Qualified and nonqualified defined contribution plans; |
| | | | | plans*; ● | | Qualified and nonqualified defined benefit plans;plans*; and |
| | | | | ● | | Deferred compensation plan. *See“Retirement Programs” on page 42 for NEO eligibility |
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Other Benefits | | Keeps program competitive and provides protection for executives, where warranted. | | Benefit
| | Benefit | | Perquisites are limited in amount and use. |
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Severance Severance and Change
in Control Agreements | | Helps ensure NEOs remain focused on creating sustainable performance. | | Benefit | | Benefit
| | Agreements help protect the Company and the NEOs from risks by providing: |
| | | | | ● | | Economic stability; |
| | | | | ● | | Death or disability payments; and |
| | | | | ● | | Payments and benefits in the event of a qualifying termination, including in connection with a change in control. |
Analysis of 20162017 Compensation
Base Salary
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Base Salary
Base salaries for the NEOs are intended to reflect the scope of their responsibilities, the length of their experience performing those responsibilities and their performance. The Compensation Committee initially determines base salary ranges for executive officers based on external general market and peer group data for salary practices for positions with similar levels of responsibility. The Compensation Committee also reviews base salaries for the NEOs annually in light of each officer’s experience, leadership, current salary and position in the salary range. | | | | Establishing Base Salaries When establishing base salaries for NEOs, the Compensation Committee considers general industry data for comparable roles and peer group data as a guideline. | | |
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officers based on external general market and peer group data for salary practices for positions with similar levels of responsibility. The Compensation Committee also reviews base salaries for the NEOs annually in light of each officer’s experience, leadership, current salary and position in the salary range.
20162017 Base Salary Decisions
| ● | | CEO: Mr. Kyle did not receive a base salary increase in 2016.2017. His last base salary increase was in May of 2014 to reflect his appointment as President and CEO. |
| ● | | Other NEOs: Mr. Myers was named Vice President, Human Resources in June 2016. In connection with his new role, heFracassa received a base salary increase of 7%3% in June 2016. None ofMarch 2017. Mr. Myers was appointed to Executive Vice President, Human Resources in November 2017 and he received base salary increases totaling 20% in 2017 to align him closer to the other NEOs receivedmarket and to reflect his promotion. Mr. Coughlin and Mr. Burkhart did not receive a base salary increase in 2016.2017. Ms. Cheverine’s initial base salary was determined by considering market data for the role as well as her past experience. |
Annual Cash Incentive
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The Company’s annual cash incentive provides the NEOs with the opportunity to earn rewardscompensation based on the achievement of annual corporate performance goals established by the Compensation Committee and approved by the Board. It is intended to focus the NEOs on specific performance goals in the current year. For all NEOs except Mr. Myers,Ms. Cheverine, the 20162017 annual cash incentive was delivered through the Senior Executive Management Performance Plan (the “SEMPP”). Mr. Myers’ 2016Ms. Cheverine’s 2017 annual cash incentive was delivered through | | | | Linking Compensation to Performance The Compensation Committee established adjusted EBIT as the primary performance measure because it believes this measure is closely correlated with the creation of shareholder value. |
incentive was delivered through the broad-basedcorporate annual cash incentive plan described below. Beginning in 2017, Mr. Myers’ annual incentive is expected to be delivered through the SEMPP. |
Our SEMPP permits us to grant awards that may comply withbe able to qualify as “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). InHistorically, in order for amounts earned under this plan to potentially qualify as “performance-based,”“performance-based” for purposes of Section 162(m) of the Code, the Compensation Committee cancould exercise discretion only to reduce an award. As a result, for 2017 and prior fiscal years, performance at target levels resultsresulted in the plan being funded above the level of the Company’s othercorporate annual cash incentive plans. This providesprovided the Compensation Committee with the flexibility to determine actualfinal awards for the NEOs that arewere consistent with the awards made to othercorporate annual cash incentive plan participants, which has been the historical practice. Ms. Cheverine’s annual cash incentive for 2017 was not intended to be “qualified performance-based compensation” under Section 162(m) of the Code, however, because it was not certified by the Compensation Committee during the first 90 days of 2017.
Section 162(m) of the Code generally places a $1 million limit on the amount of compensation a company can deduct in any one year for certain executive officers (and, beginning in 2018, certain former executive officers). While the Compensation Committee considers the deductibility of awards as one factor in determining executive compensation, the Compensation Committee also looks at other factors in making its decisions. Further details are provided on page 46.
The exemption from the Section 162(m) deduction limit for performance-based compensation was repealed in the tax reform legislation signed into law on December 22, 2017, effective for taxable years beginning after December 31, 2017, unless transition relief for certain compensation arrangements in place as of November 2, 2017 is available. As a result, it is uncertain whether compensation that the Compensation Committee intended to structure as performance-based compensation under Section 162(m) will be deductible. The Compensation Committee will consider the impact of the repeal of the exemption from the Section 162(m) deduction limit for performance-based compensation when determining executive compensation for 2018.
In 2016,2017, the Company used adjusted EBIT (based on fully adjusted earnings used for external reporting, further adjusted to exclude post-closing operating results of acquisitions) and working capital as a percentage of sales as the performance measures for funding the SEMPP. Because actual performance for both measures was belowabove target, the 20162017 SEMPP was eligible to be funded at 81%203% of target. Mr. Kyle, as CEO, had a target award opportunity of 120% of base salary and the other NEOs had target award opportunities ranging from 51%55% to 75% of base salary in 2016. Mr. Myers’ target award opportunity increased from 45% to 55% to reflect his appointment to Vice President, Human Resources on June 1, 2016.2017.
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Aligning Executive Annual Cash Incentives with Broad-BasedCorporate Annual Cash Incentive Plan Like other eligible corporate Company employees, our NEOs have the opportunity to receive an annual cash incentive award for meeting or exceeding a series of individual and collective performance targets over the course of the year. While the SEMPP is the plan the NEOs (other than Mr. MyersMs. Cheverine in 2016)2017) participate in, the payouts from this plan take into account payouts associated with the Company’s corporate annual cash incentive plan that covers other eligible corporate employees generally. Annual cash incentive payouts are determined by the following factors:by: ● Corporate performance (measured by adjusted EBIT and working capital as a percentage of sales); and ● Individual performance. Specific factors that go into setting the target include consideration of prior-year results for the Company as compared to competitors’ and industrial peers’, current market conditions and outlook, acquisitions, divestitures, past targets and performance against those targets, and macro-economic factors such as currency rates. Performance goals for the Company’s broad-basedcorporate annual cash incentive plan were set at the startbeginning of 2017. At that time, global industrial markets were still sluggish, with customers and the year. Company having limited visibility to future demand and currency remaining an operating headwind. When set, the 2017 adjusted EBIT target, which was a 10% increase over actual 2016 EBIT results (using comparable exclusions), was viewed as a challenging objective for the management team by the Compensation Committee. The 2017 target for working capital as a percentage of sales was set at a level that reflects a 120 basis point improvement over 2016 actual results. Similar factors were considered when setting the 2017 target for working capital as a percentage of sales, including the impact of acquisitions, currency, mix and volume. In addition to the performance measures outlined by the SEMPP, performance against the broad-basedcorporate annual cash incentive plan goals is a factor the Compensation Committee considers when determining an NEO’s annual cash incentive payout. A summary of performance and calculated payouts for 20162017 annual cash incentives are shown in the section below. |
20162017 Annual Performance Award Decisions
The SEMPP ishas been used historically to maintain the tax deductibility of annual cash incentive awards.awards to our executives. Under the SEMPP, actual performance under the two financial metrics must reach the respective minimum threshold for that portion of the SEMPP plan to be funded.
The Compensation Committee determined the actual annual cash incentive award paid to each NEO should be aligned with the calculated award, as a percentage of target opportunity, under the Company’s corporate annual cash incentive plan for other management-level employees (detailed in the charts below). As a result, the Compensation Committee exercised negative discretion as needed to reduce the NEOs’ awards to be in line with the broad-basedcorporate plan. Performance targets and actual performance levels for the 20162017 SEMPP and broad-basedcorporate annual cash incentive plan are shown below:
SEMPP
| | | Threshold | | Target | | Maximum | | Actual | | Threshold | | Target | | Maximum | | Actual |
Adjusted EBIT (80% weighting) | | $230M | | $336M | | $437M | | $255M (101% funding) | | $190M | | $283M | | $367M | | $314.1M (203.3% funding) |
Working Capital as a % of Sales (20% weighting) | | 29.9% | | 28.4% | | 26.0% | | 30.2% (0% funding) | | 31.2% | | 29.0% | | 26.5% | | 28.1% (202.4% funding) |
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Plan Funding | | 80% | | 170% | | 260% | | 81% funding | | 80% | | 170% | | 260% | | 203% funding |
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| Broad-Based Annual Incentive Plan | | | | | | | | | |
| | Threshold | | Target | | Maximum | | Actual | |
Adjusted EBIT* (80% weighting) | | $235M | | $336M | | $437M | | $255M (60% payout) | |
Working Capital as a % of Sales (20% weighting) | | 29.9% | | 28.4% | | 26.0% | | 30.2% (0% payout) | |
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Plan Payout | | 50% | | 100% | | 200% | | 48% payout | |
Corporate Annual Cash Incentive Plan
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| | Threshold | | Target | | Maximum | | Actual |
Adjusted EBIT* (80% weighting) | | $198M | | $283M | | $367M | | $314.1M
(137% payout) |
Working Capital as a % of Sales (20% weighting) | | 31.2% | | 29.0% | | 26.5% | | 28.1% (136% payout) |
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Plan Payout | | 50% | | 100% | | 200% | | 136.8% payout |
*Adjusted EBIT less than $230M$190M will result in zero payout for the plan. Between $190M and $198M, a payout under the Working Capital as a % of Sales metric is possible.
The calculated award for the 2016 broad-based2017 corporate annual cash incentive plan was 48%136.8% for corporate participants. Accordingly, the 20162017 cash award payout equaled 48%136.8% of the target opportunity for Mr. Kyle and the other NEOs, reflecting the Compensation Committee’s use of negative discretion to reduce payouts from the SEMPP to be in line with the broad-basedcorporate plan.
Long-Term Incentives
The Compensation Committee administers the Long-Term Incentive Plan, which was approved by our shareholders. Awards under the Long-Term Incentive Plan can be made in the form of common shares, nonqualified stock options, incentive stock options, stock appreciation rights, performance shares, performance units, restricted shares, restricted stock units, deferred shares and dividend equivalents. In 2016,2017, the Company granted:
| ● | | Nonqualified stock options that vest 25% per year over four years with aten-year exercise period and are intended to provide value to the holder only to the extent that the stockshare price rises above the market price of the stockcommon shares at the time the option is granted; |
| ● | | Performance-based restricted stock units require achievement over a three-year period of target financial and operating metrics that further align executives’the long-term financial interests of our executives with those of our shareholders and linklinks compensation to building long-term shareholder value; and |
| ● | | Time-based restricted stock units that vest 25% per year over four years and provide strong alignment between the interests of Company executives and shareholders. |
The value of each type of long-term incentive grant is linked directly to the performance of the Company or price of its common shares. In the case of stock options, the recipient recognizes value only to the extent that the stockshare price rises above the market price of the stockshare at the time the option is granted. For performance-based restricted stock units, the value of the grant is tied to both the Company’s stockshare price and the achievement of challenging financial objectives, and the value of time-based restricted stock units is directly linked to the stockshare price.
In each case described above, an executive generally must generally remain employed by the Company for a specified period of time to earn the full value of an award, which aids the Company in retaining executives. In total, the Company believes that these grants provide a balanced focus on shareholder value creation and retention of key managers over the course of a full business cycle. These grants also serve to balance the short-term operating focus of the Company and align the long-term financial interests of executive management with those of our shareholders.
The size of the long-term incentive grants and the allocation of grant value among the long-term incentive grant types is based on a combination of market practice, internal equity considerations and the relative importance of the objectives behind each of the grants.
2017 Long-Term Incentive Decisions
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2016 Long-Term Incentive Decisions | | | | |
For the annual grants made in 2016,February 2017, the target value to be delivered in nonqualified stock options, performance-based restricted stock units and time-based restricted stock units was 400% of the base salary midpoint for Mr. Kyle, and between 95%110% and 215% of the base salary midpoint for the other NEOs.NEOs (except Ms. Cheverine). The allocation percentage between the three types of equity for all NEOs receiving the annual grant was 30% nonqualified stock options, 50% performance-basedperformance- based restricted stock units and 20% time-based restricted stock units. | | | | Driving Shareholder Return Long-term incentive grants are intended to balance the short-term operating focusobjectives of the Company and alignwith long-term objectives by aligning the long-term financial interests of executive managementour executives with those of our shareholders. |
restricted stock units. |
The target value for each grant is converted to a number of shares or options based on a calculated average stock price over a defined period prior to the grant. The Compensation Committee used the average price over the five trading days immediately preceding the grant date inIn determining the number of shares or options granted in 2016.2017, the target value for each grant was converted to a number of shares or options, respectively, based on the opening share price on the day of the grant.
The Compensation Committee typically makes long-term incentive grants at the first regularly scheduled meeting of each year when the Compensation Committee determines all elements of the NEOs’ compensation for the year. Board and Compensation Committee meetings are generally scheduled at least a year in advance.
Stock Options
In 2016,2017, our key employees (including the NEOs) received nonqualified stock options that:
| ● | | Have an exercise price equal to the opening share price of the stock on the date of grant; |
| ● | | Will vest over a four-year period in equal amounts each year; and |
| ● | | Will expire ten years after the date of grant. |
The Compensation Committee believes that these awards help the Company retain executives and focus attention on longer-term performance. Stock options are an effective motivational tool because they only have value to the extent the stockshare price on the date of exercise exceeds the exercise price on the grant date. They are only an effective element of compensation and retention, however, if the stockshare price grows over the term of the award. For information about the specific number of stock options awarded in 20162017 to each NEO, see the 2016“2017 Grants of Plan-Based Awards TableTable” on page 38.51.
In connection with her hiring in May, Ms. Cheverine received nonqualified stock options that have the same criteria as outlined above except that the exercise price was equal to the closing share price on the date of her grant.
Under accounting rules, nonqualified stock options are expensed over the vesting period using the Black-Scholes value on the date of grant.
Performance-Based Restricted Stock Units
In an effort to further align the long-term interests of executive leadership with those of our shareholders, and to provide an incentive to achieve long-term financial objectives, the Compensation Committee granted performance-based restricted stock units to key employees (including the NEOs other than Ms. Cheverine, who was hired after the performance-based restricted stock units were granted in 2017) that vest pending achievement of specified performance objectives. Performance-based restricted stock units also serve to both reward and retain executives, as the receipt of a payout is linked to performance and the value of the payout is linked to the share price when the shares vest. Cumulative dividend equivalents are paid in cash based on the actual number of shares delivered at the end of the performance cycle.
2016-20182017-2019 Performance-Based RSURestricted Stock Units Cycle
The performance objectives for performance-based restricted stock units granted in 20162017 were three-year cumulative adjusted EPS (calibrated to reflect an appropriate level of growth) and ROIC for a three-year performance period (2016-2018)(2017-2019). The
Compensation Committee selected these metrics because it believesbelieved they are key components offinancial metrics that highly correlate with shareholder value creation and highly correlated to achievement of the Company’s business strategy.creation. Actual performance is calculated based on fully adjusted earnings as used for external reporting (net of taxes), with adjustments to exclude the effect of material changes in tax law, accounting principles or methods or other laws that are not reflected in the plan. For the 2017-2019 performance-based restricted stock unit cycle, the adjusted EPS target reflected 8% compound annual plan. Atgrowth over actual 2016 EPS (using comparable exclusions). The factors that go into setting the timetarget include consideration of the specificprior-years’ results for the Company as compared to competitors’ and industrial peers’, current market conditions and outlook, acquisitions, divestitures, past targets and performance against those targets and other factors. The 8% targeted increase over 2016 actual EPS was viewed as a challenging objective for each metric were established,the management team by the Compensation Committee, believed thatparticularly in light of the targetsrecent slowdown in global industrial markets. The three-year target for the performance-based restricted stock units granted inROIC reflected a 100 basis point improvement over actual 2016 were very challenging, but achievable.ROIC. The Company’s performance targets for the performance-based restricted stock units granted in 20162017 are shown in the following table:
2016-20182017-2019 Performance-Based RSURestricted Stock Units Cycle: Metrics and Weightings
*ROIC less than 6%5% will result in zero payout for the cycle.
Under accounting rules, performance-based restricted stock units are expensed over the vesting period using the fair value on the date of grant and adjusted quarterly to account for actual and anticipated performance.
Results for the 2015-2017 Performance-Based Restricted Stock Units Cycle
In 2015, the NEOs, other than Ms. Cheverine (who was hired after the performance-based restricted stock units were granted in 2017), received awards of performance-based restricted stock units to cover the three-year performance cycle beginning on January 1, 2015 and concluding on December 31, 2017.
The performance objectives for performance-based restricted stock units granted in 2015 were three-year cumulative adjusted EPS (calibrated to reflect an appropriate level of growth) and ROIC for the three-year performance period. The Compensation Committee selected these metrics because it believed they are key components of shareholder value creation and highly correlated to achievement of the Company’s business strategy. Actual performance is calculated to exclude:
| ● | | the effects of certain discrete tax adjustments; |
| ● | | one-time costs associated with unplanned acquisitions and divestitures in excess of $400 million per transaction; |
| ● | | changes in tax laws or accounting principles; |
| ● | | the impact of settlement/curtailment charges related to defined benefit pension and postretirement plans; and |
| ● | | net amounts received under the U.S. Continued Dumping and Subsidy Offset Act. |
At the time specific performance targets for each metric were established in 2015, the market environment was steady and Timken was performing well, reflecting modest revenue growth, solid operating margins and an increase in earnings. The Compensation Committee believed that the targets for the performance-based restricted stock units granted in 2015 were appropriately challenging but achievable. However, a significant contraction in industrial markets in the first two years of the plan challenged our customer base and negatively impacted demand for Timken products and services. Unfavorable moves in foreign currency also created another headwind for the Company. While performance improved in 2017, the challenging operating environment in 2015-2016 resulted in below-target performance for the three-year cycle and a corresponding below-target payout.
The Company’s performance goals and actual calculated results for the 2015-2017 cycle are summarized in the following table:
2015-2017 Performance-Based Restricted Stock Units Cycle: Metrics, Weightings and Actual Results
| | | | | | | | |
| | Threshold | | Target | | Maximum | | Actual |
Three-Year Cumulative Adjusted EPS (80% weighting) | | $6.10 | | $8.75 | | $11.40 | | $6.35 |
ROIC (20% weighting) | | 9% | | 12% | | 15% | | 9.4% |
| | | | | | | | |
Plan Funding | | 50% | | 100% | | 200% | | 55.2% |
Based on actual performance, performance-based restricted stock units were earned at 55.2% of target for the 2015-2017 cycle.
Under accounting rules, performance-based restricted stock units are expensed over the vesting period using the fair value on the date of grant and adjusted quarterly to account for actual and anticipated performance.
Time-Based Restricted Stock Units
Time-based restricted stock units that were awarded in 20162017 to each NEO, other than Ms. Cheverine (who was hired after the time-based restricted stock units were granted in 2017), vest 25 percent25% each year over a four-year period. Cumulative dividend equivalents are paid in cash upon vesting. For information about the specific number of time-based restricted stock units awarded in 2016 to each NEO,2017, see the 20162017 Grants of Plan-Based Awards Table.Table on page 51.
In 2014, the Compensation Committee awarded time-based restricted stock units that cliff-vested in February 2017. The Compensation Committee determined it would be unable to set meaningful multi-year performance targets for the 2014-2016 performance cycle due to the Spinoff, and believed that time-based restricted stock units would provide strong incentive for employees to remain committed to the Company during the implementation of the Spinoff. Cumulative dividend equivalents were paid in cash upon vesting.
Under accounting rules, time-based restricted stock units are expensed over the vesting period using the fair value on the date of grant.
Retirement Programs
The Company’s retirement programs are an important element of the total compensation package to attract and retain employees, including the NEOs. Due to market changes and acquisitions, the Company maintains a variety of retirement programs (qualified andnon-qualified) across the globe. The Company has been and continues to transition away from defined benefit plans and to the use of market-competitive defined contribution and employee savings plans. The Company took action several years ago to close the primary defined benefit plan in the United States to new entrants along with no longer providing executive benefit agreements to newly appointed NEOs. Depending on when an employee began employment and when a person became an officer determines in which of the programs they participate. NEOs participate in qualified plans on the same terms and conditions as other eligible salaried employees and also participate in the Company’s nonqualified retirement programs, if eligible.
Due to the varying tenure of our NEOs and the transition of our retirement plans, our NEOs participate in different programs based on their eligibility as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Defined Benefit | | | Defined Contribution | |
| Qualified | | | Nonqualified | | | Qualified | | | Nonqualified | |
| Pension Plan | | | Supplemental Pension Plan | | | SIP Plan | | | Core DC Contribution | | | Post-Tax Savings Plan | |
| | Restoration Portion | | | Excess Benefit Agreement | | | | |
The Company’s retirement programs are an important retention tool. The Company maintains both qualified and nonqualified retirement programs. The NEOs participate in qualified plans on the same terms and conditions as other eligible salaried employees and also participate in the Company’s nonqualified retirement programs. The Company currently providesnon-qualified Richard G. Kyle
| | | | | | | | | | ✓ | | | | ✓ | | | | ✓ | | | | ✓ | | |
Philip D. Fracassa | | | | The Company’s retirement programs support an important part of our executive compensation program objectives: retention.
| | | | | | ✓ | | | | ✓ | | | | ✓ | | | | ✓ | | |
retirement income through two types of plans: Christopher A. Coughlin | | ✓ | | | | ✓ | | | | ✓ | | | | ✓ | | | | | | | | ✓ | | |
Carolyn E. Cheverine | | | | | | | | | | | | | | ✓ | | | | ✓ | | | | ✓ | | |
Ronald J. Myers | | ✓ | | | | ✓ | | | | | | | | ✓ | | | | | | | | ✓ | | |
William R. Burkhart | | ✓ | | | | ✓ | | | | ✓ | | | | ✓ | | | | ✓ | | | | ✓ | | |
The following is a summary of the plans in which the NEOs participate:
| ● | | Nonqualified defined contribution plans provide forafter-tax savings based on Company matching contributions and core defined contributions in excess of tax limits. The nonqualified defined contribution plan in which the NEOs participate is thePost-Tax Savings Plan. This plan is primarily intended to restore benefits that would be provided under the qualified retirement plans were it not for limits on benefits and compensation imposed by the Code. This program is open to eligible Company employees affected by the limitations imposed by the Code. |
| ● | | Nonqualified defined benefit plans providepension plan provides for a targeted percentage of salary and annual incentive income that will continue through retirement. The NEOs participate inretirement, subject to limits on benefits and compensation imposed by the Code. During 2003, the Company moved from a nonqualified defined benefit plan calledretirement program (the “Pension Plan”) to a defined contribution retirement program for eligible U.S.-based salaried employees hired on or after January 1, 2004, as well as for current salaried employees whose age plus years of service with the Supplemental Pension PlanCompany equaled less than 50 as of the Company.December 31, 2003. |
Eligible salaried employees whose age plus years of service equaled or exceeded 50 as of December 31, 2003 participate in a defined benefit plan with a formula of 0.75% per year of service times average earnings, including base salary and cash annual incentive compensation, for the highest fivenon-consecutive years of the ten years preceding retirement (“Final Average Earnings”). Only actual years of service are counted in calculating pension benefits, except in the case of involuntary termination without cause, in which case up to two additional years of service will be credited.
The benefit generally is payable beginning at age 65 for the lifetime of the employee, with alternative forms of payment available with actuarial adjustments. This plan allows for alump-sum election in lieu of the annuity at the time of termination of employment. Participants may retire early with reduced benefits if they meet certain eligibility requirements, subject to reduction if benefits commence prior to age 62. As of December 31, 2017, Mr. Coughlin and Mr. Myers both were eligible for early retirement.
Mr. Burkhart did not have a combination of age and service with the Company that equaled or exceeded 50 as of December 31, 2003, so he ceased accumulating service under the Pension Plan after that date.
| ● | | Nonqualified defined benefit plans provide a targeted percentage of salary and annual incentive income that will continue through retirement. There are two components to this plan: |
| (1) | A restoration portion, which is intended to restorerestores benefits that would be provided under the qualified defined benefit plans were it not for limits on benefits and compensation imposed by the Code. This program is open to eligible Company employees (including the NEOs) participating in our U.S. broad-basedqualified defined benefit pension plan who are affected by the limitations imposed by the Code. |
| (2) | Individual Employee Excess Benefits Agreements for executive officers,NEOs, which provide for a benefit based on final average earnings with offsets for benefits provided under the Company’s other retirement programs. Each of the NEOs except Mr. Myers has an Employee Excess Benefits Agreement.Company-provided benefits. To align with market trends, in 2014 the Company made a decision to limit future participation in the Employee Excess Benefits program to those who were already participants. |
Although
trends, in 2014 the policiesCompany decided to limit future participation to those who already were participants.
Supplemental retirement benefits for NEOs who have an Excess Benefits Agreement will be calculated using a target benefit of 60% of Final Average Earnings, offset by any pension benefits provided by the Company as well as by an annuity that could be purchased with the NEO’s notional account balance equal to Company contributions under the core defined contribution program for eligible salaried employees (the “Core DC Program”), the Savings and procedures underlyingInvestment Pension Plan (the “SIP Plan”), which is the Company’s primary U.S.-qualified defined contribution plan for eligible salaried employees, and thenon-tax qualified restoration plan for eligible salaried employees whose contributions and benefits in qualified retirement programsplans are limited by Section 415 of the sameCode (the“Post-Tax Savings Plan”) accumulated with 8% annual interest.
Participating NEOs must have at least 10 years of Company service to earn the full benefit; however, Mr. Kyle must have at least 15 years of Company service. Benefits will be prorated for all participants, the age and lengthCompany service of service (includingless than 10 years (15 years for Mr. Kyle).
This benefit vests after five years of service as an officer of the Company)Company, with an unreduced benefit payable on or after age 62. Early retirement at age 55 with at least 15 years of each
participant can have a significant effect on their benefit calculation because the programs have changed over time. In addition, becauseCompany service will be available, but if benefits under the Company’s retirement programs are based on base salary and cash annual incentive compensationcommenced early, they will be reduced by 4% per year for the five highestnon-consecutive years (out of the final ten years), pension values can increase significantly as salary and cash annual incentive compensation increases. Annual pension values in the 2016 Summary Compensation Table are also influenced by external factors such as interest rates. See “Pension Benefits” on page 41.
The value of the nonqualified retirement programs is quantified each year and these programs are periodically reviewedof early commencement prior to age 62. This plan allows for their competitiveness. To date, the valuealump-sum election in lieu of these programs has not had a significant impact on decisions regarding salary, annual incentive awards or long-term incentive grants.an annuity.
| ● | | The SIP Plan provides matching Company contributions of 100% match on the first 3% of employee contributions plus a 50% match on the next 3% contributed by the employee, subject to compensation and benefit limitations imposed by the Code. |
| ● | | Core DC Contribution refers tonon-matching Company contributions provided within the SIP Plan to eligible U.S.-based salaried employees hired on or after January 1, 2004, as well as for salaried employees whose age plus years of service with the Company equaled less than 50 as of December 31, 2003 (i.e., those not earning pension service). Contributions range from 1% to 4.5% of eligible compensation (up to Code limits) based on the sum of an employee’s age plus years of service. |
| ● | | ThePost-Tax Savings Plan is intended to restore benefits that would be provided under the U.S.-qualified defined contribution plan were it not for limits on benefits and compensation imposed by the Code. This program is open to eligible Company employees affected by the limitations imposed by the Code. Affected employees have the option each year of taking these contributions in taxable cash at the end of each year or to defer the amounts with interest credited at a market-based interest rate (currently prime + 1%). |
Deferred Compensation
The Company maintainsprovides to certain employees, including the NEOs, a 1996 Deferred Compensation Plan, as amended and restated effective January 1, 2015 (the “Deferred Compensation Plan”) that allows certain employees, including the NEOs,them to defer the receipt, on apre-tax basis, of a portion of their salary, employee or Company 401(k) or core defined contributions in excess of tax limits and/or incentive compensation payable in cash or common shares (other than restricted shares or options) until a specified point in the future. Cash deferrals earn interest quarterly at a rate based on the prime rate plus one percent. NoneAll of the NEOs were eligible to participate in the Deferred Compensation Plan and none earned “above-market” interest, as defined by the SEC.
The Deferred Compensation Plan is not funded by the Company, and participants have an unsecured contractual commitment by the Company to pay the amounts due under the plan. When such payments are due, they will be distributed from the Company’s general assets. In the event of a change in control of the Company, as defined in the plan, participants are entitled to receive deferred amounts immediately.
The Compensation Committee believes that providing employees with tax deferral opportunities aids in the attraction and retention of such employees.
The value of deferred compensation amounts is quantified each year and this program is reviewed periodically reviewed for its competitiveness. To date, theThe value of deferred compensation has not had a significant impact on decisions regarding salary, annual cash incentive awards or long-term incentive grants for our NEOs.
Other Benefits
The Company’s executive officers, including all of the NEOs are eligible to participate in a number of broad-based benefit programs offered to certain other employees, including health, disability and life insurance programs.
The NEOs also may also receive certain perquisites including term life insurance coverage (although this program is closed to new entrants), financial counselingplanning and tax preparation assistance and access to corporate country club memberships (although personal expenses are not reimbursed). We have eliminated the financial planning allowance for NEOs beginning January 1, 2018.
The Company does not provide taxgross-ups for these benefits to executives. These benefits are intended to provide executives with a competitive perquisite program that is reasonable and consistent with the Company’s overall approach to executive compensation. The total cost of these benefits is a small percentage of each NEO’s total compensation.
Severance Agreements
| | |
In addition to retirement payments, the Company provides termination-related payments in the event of involuntary termination without cause and involuntary termination without cause following a change in control through severance agreements with individual executives. Severance agreements are provided based on competitive market practice and the Company’s desire to ensure some level of income continuity should an executive’s employment | | The Company believes that providing for income continuity results in greater management stability and lower unwanted management turnover. |
should an executive’s employment be terminated without cause. The Company believes | | |
that providing for such income continuity results in greater management stability and lower unwanted management turnover. |
be terminated without cause. The Company believes that providing for such income continuity results in greater management stability and lower unwanted management turnover.
The level of severance benefits reflects the Company’s perception of competitive market practice for the NEOs’ positions, based on an assessment by Willis Towers Watson.WTW. Severance pay was established as a multiple of base salary and actual annual cash incentive compensation. The amounts of potential payoutspayout amounts are indicated in the “Termination Scenarios Table.Table” on page 59.
To align with market trends and governance best practice all of the executive officers of the Company have entered intoThe severance agreements which do not contain an excise taxgross-up provision.
Stock Ownership Guidelines
Stock ownership guidelines have been established for all senior executives and are intended to align the interests of executive management with those of our shareholders. These guidelines establish a specific ownership target for each of the NEOs.
For 2016,In determining whether the executive had met his/her individual ownership target for 2017, the Company considered all shares owned by the executive, including deferred shares restricted shares and time-based restricted stock units (stock settled) still subject to forfeiture, butforfeiture. Performance-based shares/units are not counted towards ownership until they are vested, nor are shares that are subject to unexercised options, in determining whether the executive has met his individual ownership target. As of December 31, 2016, all NEOs exceeded their individual ownership target.options.
To better align with common market practice, as of January 1, 2017, the share ownership requirement was revised to be based on a multiple of base salary and performance-based shares/units no longer count towards ownership until they are vested.salary. NEOs must meet this requirement within five years of becoming an NEO. The NEO must retain any net shares after tax until the ownership requirement is met. If ownership falls below the requirement due to a decline in share price, the expectation would be to maintain net shares after tax until the ownership requirement is met. It does not require purchasing shares on the open market, but maintaining net shares on future vestings. As of December 31, 2017, all
NEOs (except Ms. Cheverine and Mr. Myers) exceeded their individual ownership target. Ms. Cheverine was hired by the Company in May 2017 and is on track to achieve her ownership requirement within the five-year time frame. Mr. Myers was appointed to Executive Vice President, Human Resources in November 2017 and is on track to achieve his ownership requirement within the five-year time frame.
| | | | | |
2017 Requirement - Multiple of Base Salary |
CEO | | | 2016 Requirement -
Fixed Shares
| 5x | |
| |
Other NEOs | | 2017 Requirement -
Multiple of Base Salary
|
Mr. Kyle
| | 100,000 shares | | 5x |
Mr. Fracassa
| | 35,000 shares | | 3x |
Mr. Coughlin
| | 35,000 shares | | 3x |
Mr. Burkhart
| | 25,000 shares | | 3x |
Mr. Myers
| | 13,500 shares | | 2x |
Anti-Hedging/Pledging Policies
The Company has a formal policy that prohibits pledging Company stockcommon shares or hedging the economic risk related to such stock ownership.
Compensation Risk Assessment
The Compensation Committee regularly reviews the risk associated with the Company’s compensation programs. As part of this process, the Compensation Committee reviewed a comprehensive risk assessment conducted by WTW in 2016 and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. In 2017, the Compensation Committee discussed with WTW any changes over the last year that could impact risk. The Compensation Committee and WTW concluded that no plan changes were implemented in 2017 that would affect materially the existing risk profile of the compensation programs, and that several of our current practices effectively mitigate risk and promote performance.
Clawback Provisions
The Company maintains specific provisions regarding the recovery of awards to deter certain types of conduct, including conduct that could affect the accuracy of the Company’s financial statements. These provisions apply to both short- and long-term incentive programs where, if personal misconduct or any fraudulent activity on the part of the executive leads to the restatement of Company financial results, the Company can clawback an award. In such cases, the Compensation Committee has discretion, based on applicable facts and circumstances, to cause the Company to recover all or any portion of the incentive paid or payable to the executive for some or all of the years covered by the restatement.
Tax Accounting Rules and Regulations
The Company analyzesconsiders the overall expense arising from aggregate executive compensation, as well as the accounting and tax treatment of such programs. Section 162(m) of the Code generally disallows a federal income tax deduction to publicly traded companies for compensation paid to certain executives (and, beginning in 2018, certain former executives) to the extent such compensation exceeds $1 million per executive in any fiscal year. Compensation that satisfies the Code’s requirements for performance-based compensation ishas not been subject to that deduction limitation. The Company hashad addressed the impact of Section 162(m) of the Code by obtaining shareholder approval of the SEMPP and the Long-Term Incentive Plan. In addition, it may structurehas structured certain grants under the Long-Term Incentive Plan to potentially qualify as performance-based compensation.
The Compensation Committee considersconsidered the deductibility of compensation and benefits for federal income tax purposes, along with other relevantprimary factors, when determining executive compensation practices. WhileHowever, the Compensation Committee may take action from time to time to design certain elements of the NEOs’ compensation to meet the requirements for qualified performance-based compensation and limit the impact of Section 162(m) of the Code, the Compensation Committee also believes that tax deductibility is only one of several relevant considerations in setting compensation. The Compensation Committee believes that the tax deduction limitation should not compromise its ability to design and maintain executive compensation arrangements that will attract, motivate and help retain executive talent. Accordingly, achieving the
desired flexibility in the design and delivery of compensation may result in compensation that in certain cases is not deductible for federal income tax purposes.
The exemption from the Section 162(m) deduction limit for performance-based compensation was repealed in the tax reform legislation signed into law on December 22, 2017, effective for taxable years beginning after December 31, 2017, unless transition relief for certain compensation arrangements in place as of November 2, 2017 is available. As a result, it is uncertain whether compensation that the Compensation Committee intended to structure as performance-based compensation under Section 162(m) will be deductible. The Compensation Committee will consider the impact of the repeal of the exemption from Section 162(m)’s deduction limit for performance-based compensation when determining executive compensation for 2018.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the CD&A for the year ended December 31, 2017 with our management. Following the review and discussion referred to above, the Compensation Committee recommended to our Board, and our Board approved, the inclusion of the CD&A in our Annual Report on Form10-K for the fiscal year ended December 31, 2017 and this Proxy Statement for filing with the SEC.
John A. Luke, Jr. (Compensation Committee Chairman)
Maria A. Crowe
Christopher L. Mapes
James F. Palmer
Ajita G. Rajendra
Jacqueline F. Woods
CEO PAY RATIO
For 2017, the ratio of our CEO’s annual total compensation (“CEO Compensation”) to the median of the annual total compensation of all of our employees ((other than our CEO and the Excluded Employees (as defined below)) as described below (“Median Annual Compensation”), commonly referred to as the “CEO Pay Ratio”, was 181 to 1. This CEO Pay Ratio disclosure is a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K using the data and assumptions described below, but there may be a degree of imprecision due to the permitted use of reasonable estimates and assumptions in preparing this CEO Pay Ratio disclosure. In this summary, we refer to the employee who received our Median Annual Compensation as our “Median Employee.” For purposes of this disclosure, the date used to identify our Median Employee was December 31, 2017 (the “Determination Date”).
For purposes of this CEO Pay Ratio disclosure, CEO Compensation was $8,603,973, which represents the total compensation reported for our CEO in the “2017 Summary Compensation Table”. Also for purposes of this CEO Pay Ratio disclosure, Median Annual Compensation was $47,462, which was calculated by totaling all applicable elements of compensation that our Median Employee earned during the 2017 fiscal year in accordance with Item 402(c)(2)(x) of RegulationS-K.
To identify our Median Employee, we utilized the consistently applied compensation measure of ”target total direct compensation” for the period from January 1, 2017 to December 31, 2017, which measure consisted of the sum of annual base pay plus the targeted value of annual and long-term incentives. For hourly workers, annual base pay was calculated using a reasonable estimate of hours worked during 2017 multiplied by the applicable hourly rate. In addition, we annualized the total compensation (based on reasonable assumptions and estimates relating to our employee compensation program) for any employees (full-time and part-time) that commenced employment with the Company after January 1, 2017. To establish our employee pool, as permitted by the applicable SEC rules, we
excluded 5533non-U.S employees who were employed in locations that individually represent less than 5% of our total global workforce (approximately 3.6% of our total global workforce of 15,216 employees as of December 31, 2017) (the “Excluded Employees”) from our Median Employee determination process to arrive at a pool of 14,663 employees (this pool, excluding the Excluded Employees and the CEO, is hereinafter referred to as the “Employee Pool”). The Employee Pool does not include any independent contractors or “leased” workers, as permitted by the applicable SEC rules, and does not exclude any employees of businesses acquired by us or combined with us. We next calculated the median target total direct compensation for our Employee Pool and identified the subset of employees who were paid within a 1% range of such median (the “Comparison Group”). Finally, we selected a representative employee from the Comparison Group as our Median Employee and determined our Median Employee’s Median Annual Compensation as described above. We did not utilize anycost-of-living adjustments for purposes of this CEO Pay Ratio disclosure.
EXECUTIVE COMPENSATION
2016 SUMMARY COMPENSATION TABLE2017 Summary Compensation Table
The following table sets forth information concerning compensation for our named executive officersNEOs for 2016:2017.
| | | | | | | | | | | | | | | | |
Name and Principal Position(1) | | Year | | Salary | | Stock Awards (2) | | Option Awards (3)
| | Non-Equity Incentive Plan Compensation (4) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (5) | | All Other Compensation (6) | | Total |
Richard G. Kyle President & CEO | | 2016 | | $900,000 | | $2,784,713 | | $1,192,862 | | $518,400 | | $1,123,000 | | $125,768 | | $6,644,743 |
| 2015 | | $900,000 | | $2,994,254 | | $1,295,954 | | $453,600 | | $837,000 | | $162,962 | | $6,643,770 |
| 2014 | | $850,000 | | $2,487,278 | | $2,677,778 | | $1,007,559 | | $1,062,000 | | $80,394 | | $8,165,009 |
| | | | | | | | |
Philip D. Fracassa Executive Vice President and Chief Financial Officer | | 2016 | | $500,000 | | $615,356 | | $263,494 | | $180,000 | | $407,000 | | $69,822 | | $2,035,672 |
| 2015 | | $490,000 | | $661,327 | | $286,207 | | $152,810 | | $299,000 | | $69,107 | | $1,958,451 |
| 2014 | | $417,067 | | $667,982 | | $482,599 | | $273,737 | | $703,000 | | $48,645 | | $2,593,030 |
Christopher A. Coughlin Executive Vice President, Group President | | 2016 | | $515,041 | | $871,350 | | $373,013 | | $185,415 | | $515,000 | | $41,218 | | $2,501,037 |
| 2015 | | $515,041 | | $936,096 | | $405,241 | | $162,238 | | $84,000 | | $47,585 | | $2,150,201 |
| 2014 | | $512,541 | | $1,137,963 | | $893,424 | | $383,454 | | $1,349,000 | | $41,745 | | $4,318,127 |
| | | | | | | | |
William R. Burkhart Executive Vice President, General Counsel and Secretary | | 2016 | | $455,100 | | $398,213 | | $170,363 | | $152,914 | | $348,000 | | $59,218 | | $1,583,808 |
| 2015 | | $455,100 | | $428,348 | | $185,261 | | $133,799 | | $0 | | $75,919 | | $1,278,427 |
| 2014 | | $455,100 | | $971,636 | | $407,997 | | $318,062 | | $834,000 | | $73,730 | | $3,060,525 |
Ronald J. Myers Vice President, Human Resources | | 2016 | | $291,996 | | $176,213 | | $74,960 | | $71,476 | | $150,000 | | $20,669 | | $785,314 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | | Salary | | | Equity Awards (3) | | | Option Awards (4) | | | Non-Equity Incentive Plan Compensation (5)
| | | Change in Pension Value and Nonqualified Deferred Compensation Earnings (6) | | | All Other Compensation (7)
| | | Total | |
Richard G. Kyle | | | 2017 | | | | $900,000 | | | | $2,912,604 | | | | $1,248,150 | | | | $1,477,656 | | | | $1,706,000 | | | | $359,563 | | | | $8,603,973 | |
President & CEO | | | 2016 | | | | $900,000 | | | | $2,784,713 | | | | $1,192,862 | | | | $518,400 | | | | $1,123,000 | | | | $125,768 | | | | $6,644,743 | |
| | | 2015 | | | | $900,000 | | | | $2,994,254 | | | | $1,295,954 | | | | $453,600 | | | | $837,000 | | | | $162,962 | | | | $6,643,770 | |
Philip D. Fracassa | | | 2017 | | | | $512,500 | | | | $645,104 | | | | $275,865 | | | | $525,902 | | | | $670,000 | | | | $142,474 | | | | $2,771,845 | |
Executive Vice President and Chief | | | 2016 | | | | $500,000 | | | | $615,356 | | | | $263,494 | | | | $180,000 | | | | $407,000 | | | | $69,822 | | | | $2,035,672 | |
Financial Officer | | | 2015 | | | | $490,000 | | | | $661,327 | | | | $286,207 | | | | $152,810 | | | | $299,000 | | | | $69,107 | | | | $1,958,451 | |
Christopher A. Coughlin | | | 2017 | | | | $515,041 | | | | $911,535 | | | | $390,345 | | | | $528,510 | | | | $833,000 | | | | $218,798 | | | | $3,397,229 | |
Executive Vice President, Group | | | 2016 | | | | $515,041 | | | | $871,350 | | | | $373,013 | | | | $185,415 | | | | $515,000 | | | | $41,218 | | | | $2,501,037 | |
President | | | 2015 | | | | $515,041 | | | | $936,096 | | | | $405,241 | | | | $162,238 | | | | $84,000 | | | | $47,585 | | | | $2,150,201 | |
Carolyn E. Cheverine(1) | | | 2017 | | | | $212,500 | | | | $554,990 | | | | $370,004 | | | | $159,908 | | | | - | | | | $21,140 | | | | $1,318,542 | |
Executive Vice President, General | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Counsel and Secretary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ronald J. Myers | | | 2017 | | | | $330,661 | | | | $289,106 | | | | $123,755 | | | | $248,826 | | | | $246,000 | | | | $37,617 | | | | $1,275,965 | |
Executive Vice President, Human | | | 2016 | | | | $291,996 | | | | $176,213 | | | | $74,960 | | | | $71,476 | | | | $150,000 | | | | $20,669 | | | | $785,314 | |
Resources | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
William R. Burkhart(2) | | | 2017 | | | | $280,990 | | | | $416,086 | | | | $178,345 | | | | $269,115 | | | | $1,410,000 | | | | $68,041 | | | | $2,622,577 | |
Former Executive Vice President, | | | 2016 | | | | $455,100 | | | | $398,213 | | | | $170,363 | | | | $152,914 | | | | $348,000 | | | | $59,218 | | | | $1,583,808 | |
General Counsel and Secretary | | | 2015 | | | | $455,100 | | | | $428,348 | | | | $185,261 | | | | $133,799 | | | | - | | | | $75,919 | | | | $1,278,427 | |
| (1) | Ms. Cheverine joined the Company as Executive Vice President, General Counsel and Secretary on May 30, 2017. |
| (2) | Mr. Kyle became CEO in 2014Burkhart resigned as Executive Vice President, General Counsel and previouslySecretary effective May 29, 2017 and remained employed by the Company as an advisor until August 11, 2017. Mr. Burkhart is included because he served as chief operating officer. Mr. Fracassa became Chief Financial Officeran executive officer in 20142017 and previously servedhis compensation qualifies him as senior vice president for corporate planningsomeone who would have been among the three highest paid executive officers other than the CEO and development.CFO during 2017 had he still been serving as an executive officer on December 31, 2017. |
3 The Excluded Employees include the following number of employees from the following countries: (a) Italy – 255 employees; (b) Brazil – 104 employees; (c) South Africa – 90 employees; (d) Mexico – 62 employees; (e) Russia – 14 employees; (f) Indonesia – 7 employees; (g) Turkey – 7 employees; (h) Israel – 4 employees; (i) Columbia – 3 employees; (j) Malaysia – 2 employees; (k) Philippines – 2 employees; (l) Viet Nam – 2 employees; and (m) Serbia – 1 employee.
(2) | The(3) | For NEOs (except Ms. Cheverine) the amounts shown in this column for 20162017 include the grant date fair market value of time-based restricted stock units granted in 2016.2017. See the description of time-based restricted stock units on page 33.42. Additionally, this column includes the grant date fair market value of the performance-based restricted stock units for the 2016-20182017-2019 performance cycle at target. See the description of the performance-based restricted stock units on page 32.40. Should performance equal or exceed the maximum goals for these performance-based restricted stock units, the grant date fair market value for such awards would be: Mr. Kyle - $3,997,963;$4,160,863; Mr. Fracassa - $878,288;$920,605; Mr. Coughlin - $1,244,588;$1,301,545; Mr. Myers - $412,685; and Mr. Burkhart - $568,875;$594,085. For Mr. Burkhart, the amounts in this column for both time-based restricted stock units and Mr. Myers - $251,138.performance-based restricted stock units were forfeited upon his resignation from the Company on August 11, 2017. |
For 2014,Ms. Cheverine, the amount reported includesshown in this column for 2017 reflects the regular annual long-term incentive grant plusof deferred shares awarded upon her hire, which vest 100% on the valuefifth anniversary of the half-cycle strategic performance share grant made in August 2014 in replacementdate of the portion of the 2013-2015 grant that was cancelled.grant.
The amounts shown in this column are computed in accordance with FASB ASC Topic 718.
(3) | (4) | The amounts shown in this column for 20162017 represent the grant date fair value of nonqualified stock options granted in 20162017 (calculated in accordance with FASB ASC Topic 718) using the Black-Scholes model. All stock options vest at a rate of 25% per year. Assumptions used to determine the value of these nonqualified stock options are listed in the discussion of Stock Compensation Plans in Note 13 of the Company’s Consolidated Financial Statements contained in the Company’s Annual Report on Form10-K for the year ended December 31, 2016.2017. |
For Mr. Burkhart, the amount in this column was forfeited upon his resignation from the Company on August 11, 2017.
(4) | The amounts shown in this column for 2016 represent cash awards under the annual incentive plan for 2016 performance. |
(5) | The amounts shown in this column for 20162017 represent cash awards under the annual cash incentive plan for 2017 performance. For Mr. Burkhart, the Compensation Committee exercised discretion to pay him a prorated annual cash incentive plan award through August 11, 2017. |
| (6) | The amounts shown in this column for 2017 represent the difference between the accumulated benefit amounts shown in the 20162017 Pension Benefits Table as of December 31, 20162017 and those amounts calculated as of December 31, 2015.2016. See the discussion of“2017 Pension Benefits Table”on page 4155 for a description of how the amounts as of December 31, 20162017 were calculated. The amounts as of December 31, 20152016 were calculated in the same manner as the December 31, 20162017 amounts, except that a discount rate of 4.7%4.34% was used (compared to a discount rate of 4.34%3.80% for the 20162017 amounts). For 2016,2017, liabilities were determined assuming no probability of termination, retirement, death, or disability before age 62 (the earliest age unreduced pension benefits are payable from the plans). A measurement date of December 31, 20162017 was used for all NEOs. |
(6) | (7) | The amounts shown in this column for 20162017 are broken down in detaildetailed in the following table: |
| Name | | Annual Company Contribution to SIP Plan and Core DC Program (a) | | | Annual Company Contribution toPost-Tax Savings Plan (b) | | | Executive Physicals | | | Financial Planning Reimbursement | | | Personal Use of Company Country Club Memberships (c) | | | Spousal Travel (d) | | | Tax Gross- Ups (e) | | | Cash Dividend Equivalents (f) | | | Life Insurance (g) | | | Annual Company Contribution to SIP Plan and Core DC Program (a) | | | Annual Company Contribution to Post-Tax Savings Plan (b) | | | Executive Physicals | | | Financial Planning Reimburse- ment | | | Personal Use of Company Country Club Memberships (c) | | | Spousal Travel and Related Expenses (d) | | | Cash Dividend Equivalents (e) | | | Life Insurance (f) | |
Richard G. Kyle | | | $21,200 | | | | $87,088 | | | | $201 | | | | $915 | | | | $3,770 | | | | $4,976 | | | | $0 | | | | $5,272 | | | | $2,346 | | | | $21,600 | | | | $91,872 | | | | $2,526 | | | | $710 | | | | $5,852 | | | | $1,848 | | | | $232,809 | | | | $2,346 | |
Philip D. Fracassa | | | $21,200 | | | | $31,025 | | | | $2,678 | | | | $5,000 | | | | $0 | | | | $7,942 | | | | $0 | | | | $1,165 | | | | $812 | | | | $21,600 | | | | $33,669 | | | | - | | | | $7,500 | | | | - | | | | $848 | | | | $78,045 | | | | $812 | |
Christopher A. Coughlin | | | $11,925 | | | | $18,553 | | | | $1,622 | | | | $0 | | | | $2,143 | | | | $2,922 | | | | $0 | | | | $1,648 | | | | $2,405 | | | | $12,150 | | | | $19,370 | | | | $1,734 | | | | $5,071 | | | | $2,126 | | | | $1,589 | | | | $174,353 | | | | $2,405 | |
Carolyn E. Cheverine | | | | $8,775 | | | | - | | | | $2,974 | | | | $7,500 | | | | - | | | | $891 | | | | - | | | | $1,000 | |
Ronald J. Myers | | | | $12,150 | | | | $5,946 | | | | $1,627 | | | | $7,500 | | | | - | | | | $891 | | | | $8,208 | | | | $1,295 | |
William R. Burkhart | | | $22,525 | | | | $27,531 | | | | $1,255 | | | | $4,600 | | | | $0 | | | | $0 | | | | $0 | | | | $753 | | | | $2,554 | | | | $22,950 | | | | $18,483 | | | | $154 | | | | $850 | | | | - | | | | $629 | | | | $22,841 | | | | $2,134 | |
Ronald J. Myers | | | $11,925 | | | | $3,593 | | | | $2,339 | | | | $1,285 | | | | $0 | | | | $0 | | | | $0 | | | | $335 | | | | $1,192 | | |
| (a) | “SIP Plan” refers to the Savings and Investment Pension Plan, which is the Company’s primary U.S. qualified defined contribution plan for eligible salaried employees. “Core DC Program” refers to the core defined contribution program for alleligible salaried employees hired on or after January 1, 2004, as well as for salaried employees whose age plus years of service with the Company |
| equaled less than 50 as of December 31, 2003.employees. Messrs. Kyle, Fracassa and Burkhart and Ms. Cheverine participated in the Core DC Program during 2016.2017. See the“Retirement Programs”section on page 42 for plan details. |
| (b) | The“Post-Tax Savings Plan” is the Company’snon-tax qualified restoration plan for eligible salaried employees whose contributions and benefits in qualified retirement plans are limited by Section 415 of the Code. |
| (c) | The amounts shown for personal use of country club memberships reflectpro-rated prorated amounts of Company-paid annual membership dues in 20162017 that were used for personal use by the NEOs. There are no incremental costs to the Company for personal use, as all such costs are borne by the NEO. |
| (d) | The amounts shown for spousal travel include actual and estimated incremental travel expenses when accompanying the NEO on business travel. No taxgross-ups on the imputed income are paid. |
| (e) | The Company does not provide taxgross-ups for benefits to executives. |
| (f) | Cumulative dividend equivalents paid in cash upon vesting for time-based restricted stock units. |
| (g)(f) | The amounts shown represent imputed income for the cost ofpre-tax term life insurance (which is provided by the Company for all associateseligible employees equal to one times their annual salary) for the portion that exceeds the IRSInternal Revenue Service (“IRS”)pre-tax limit of $50,000. In addition, this column includes a life insurance premium which isthat was paid by the Company in connection with a death benefit agreement for Mr. Burkhart ($1,434). The death benefit agreement was forfeited with Mr. Burkhart’s resignation from the Company on August 11, 2017. |
2016 GRANTS OF PLAN-BASED AWARDS
2017 Grants of Plan-Based Awards
The following table sets forth information concerning certain grants made to our named executive officersNEOs during 2016:2017:
| Name | | Grant Date | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards: Number of Shares of Stock or Units | | All Other Stock Awards: Number of Shares of Stock or Units | | All Other Option Awards: Number of Securities Underlying Options | | Exercise or Base Price of Option Awards ($/share) | | Closing Price on Date of Grant | | Grant Date Fair Value of Stock and Option Awards(5) | | Grant Date | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | | Estimated Future Payouts Under Equity Incentive Plan Awards: Number of Shares of Stock or Units | | | All Other Stock Awards: Number of Shares of Stock or Units | | | All Other Option Awards: Number of Securities Underlying Options | | | Exercise or Base Price of Option Awards ($/share) | | | Closing Price on Date of Grant | | | Grant Date Fair Value of Stock and Option Awards(5) | |
| | | | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | | | | | | | | | | | | Threshold | | | Target | | | Maximum | | | Threshold | | | Target | | | Maximum | | | | | | | | | | | | | | | | |
Richard G. | | 02/11/2016 RSUs (1) | | | | | | | | | | | | | | 28,675 | | | | | | | | $ 795,731 | | 02/13/2017 RSUs (1) | | | | | | | | | | | | | | | 18,350 | | | | | | | | | | $832,173 | |
Kyle | | 02/11/2016 SEMPP(2) | | $ 864,000 | | $ 1,836,000 | | $ 2,808,000 | | | | | | | | | | | | | | | | | | 02/13/2017 SEMPP(2) | | $864,000 | | | | $1,836,000 | | | | $2,808,000 | | | | | | | | | | | | | | | | | |
| | 02/11/2016 NQSOs (3) | | | | | | | | | | | | | | | | 183,800 | | $ 27.75 | | $ 28.10 | | $ 1,192,862 | | 02/13/2017 NQSOs (3) | | | | | | | | | | | | | | | | | 117,750 | | | | $45.35 | | | | $45.55 | | | | $1,248,150 | |
| | 02/11/2016 Perf RSUs (4) | | | | | | | | 7,168 | | 71,675 | | 143,350 | | | | | | | | | | $ 1,988,981 | | 02/13/2017 Perf RSUs (4) | | | | | | | | 4,588 | | | | 45,875 | | | | 91,750 | | | | | | | | | | | | $2,080,431 | |
Philip D. | | 02/11/2016 RSUs (1) | | | | | | | | | | | | | | 6,350 | | | | | | | | $ 176,213 | | 02/13/2017 RSUs (1) | | | | | | | | | | | | | | | 4,075 | | | | | | | | | | $184,801 | |
Fracassa | | 02/11/2016 SEMPP(2) | | $ 300,000 | | $ 637,500 | | $ 975,000 | | | | | | | | | | | | | | | | | | 02/13/2017 SEMPP(2) | | $307,500 | | | | $653,438 | | | | $999,375 | | | | | | | | | | | | | | | | | |
| | 02/11/2016 NQSOs (3) | | | | | | | | | | | | | | | | 40,600 | | $ 27.75 | | $ 28.10 | | $ 263,494 | | 02/13/2017 NQSOs (3) | | | | | | | | | | | | | | | | | 26,025 | | | | $45.35 | | | | $45.55 | | | | $275,865 | |
| | 02/11/2016 Perf RSUs (4) | | | | | | | | 1,583 | | 15,825 | | 31,650 | | | | | | | | | | $ 439,144 | | 02/13/2017 Perf RSUs (4) | | | | | | | | 1,015 | | | | 10,150 | | | | 20,300 | | | | | | | | | | | | $460,303 | |
Christopher A. | | 02/11/2016 RSUs (1) | | | | | | | | | | | | | | 8,975 | | | | | | | | $ 249,056 | | 02/13/2017 RSUs (1) | | | | | | | | | | | | | | | 5,750 | | | | | | | | | | $260,763 | |
Coughlin | | 02/11/2016 SEMPP(2) | | $ 309,025 | | $ 656,677 | | $ 1,004,330 | | | | | | | | | | | | | | | | | | 02/13/2017 SEMPP(2) | | $309,025 | | | | $656,678 | | | | $1,004,330 | | | | | | | | | | | | | | | | | |
| | 02/11/2016 NQSOs (3) | | | | | | | | | | | | | | | | 57,475 | | $ 27.75 | | $ 28.10 | | $ 373,013 | | 02/13/2017 NQSOs (3) | | | | | | | | | | | | | | | | | 36,825 | | | | $45.35 | | | | $45.55 | | | | $390,345 | |
| | 02/11/2016 Perf RSUs (4) | | | | | | | | 2,243 | | 22,425 | | 44,850 | | | | | | | | | | $ 622,294 | | 02/13/2017 Perf RSUs (4) | | | | | | | | 1,435 | | | | 14,350 | | | | 28,700 | | | | | | | | | | | | $650,773 | |
William R. | | 02/11/2016 RSUs (1) | | | | | | | | | | | | | | 4,100 | | | | | | | | $ 113,775 | |
Burkhart | | 02/11/2016 SEMPP(2) | | $ 254,856 | | $ 541,569 | | $ 828,282 | | | | | | | | | | | | | | | | | |
| | 02/11/2016 NQSOs (3) | | | | | | | | | | | | | | | | 26,250 | | $ 27.75 | | $ 28.10 | | $ 170,363 | |
Carolyn E. | | | 05/30/2017 Def Shares (6) | | | | | | | | | | | | | | | 11,961 | | | | | | | | | | $554,990 | |
Cheverine | | | 05/30/2017 APA(2) | | $11,688 | | | | $116,875 | | | | $233,750 | | | | | | | | | | | | | | | | | |
| | 02/11/2016 Perf RSUs (4) | | | | | | | | 1,025 | | 10,250 | | 20,500 | | | | | | | | | | $ 284,438 | | 05/30/2017 NQSOs (3) | | | | | | | | | | | | | | | | 35,441 | | | | $46.40 | | | | $46.40 | | | | $370,004 | |
Ronald J. | | 02/11/2016 RSUs (1) | | | | | | | | | | | | | | 1,825 | | | | | | | | $ 50,644 | | 02/13/2017 RSUs (1) | | | | | | | | | | | | | | | 1,825 | | | | | | | | | | $82,764 | |
Myers | | 02/11/2016 APA (2) | | $ 14,891 | | $ 148,909 | | $ 297,818 | | | | | | | | | | | | | | | | | | 02/13/2017 SEMPP(2) | | $145,491 | | | | $309,168 | | | | $472,846 | | | | | | | | | | | | | | | | | |
| | 02/11/2016 NQSOs (3) | | | | | | | | | | | | | | | | 11,550 | | $ 27.75 | | $ 28.10 | | $ 74,960 | | 02/13/2017 NQSOs (3) | | | | | | | | | | | | | | | | | 11,675 | | | | $45.35 | | | | $45.55 | | | | $123,755 | |
| | 02/11/2016 Perf RSUs (4) | | | | | | | | 453 | | 4,525 | | 9,050 | | | | | | | | | | $ 125,569 | | 02/13/2017 Perf RSUs (4) | | | | | | | | 455 | | | | 4,550 | | | | 9,100 | | | | | | | | | | | | $206,343 | |
William R. | | | 02/13/2017 RSUs (1) | | | | | | | | | | | | | | | 2,625 | | | | | | | | | | $119,044 | |
Burkhart(7) | | | 02/13/2017 SEMPP(2) | | $157,354 | | | | $334,378 | | | | $511,401 | | | | | | | | | | | | | | | | | |
| | | 02/13/2017 NQSOs (3) | | | | | | | | | | | | | | | | | 16,825 | | | | $45.35 | | | | $45.55 | | | | $178,345 | |
| | | 02/13/2017 Perf RSUs (4) | | | | | | | | 655 | | | | 6,550 | | | | 13,100 | | | | | | | | | | | | $297,043 | |
| (1) | The “RSUs” amounts shown reflect the time-based restricted stock units granted to each NEO in 20162017 under the Long-Term Incentive Plan. See the description of time-based restricted stock units on page 33.42. |
| (2) | The “SEMPP” amounts shown indicate possible funding levels at threshold, target and maximum performance levels under the SEMPP for 2016.2017. The SEMPP is a shareholder-approved plan in which all the NEOs participated in 2016,2017 except for Mr. MyersMs. Cheverine, who participated in the Company’s broad-basedcorporate annual cash incentive plan for 20162017 (shown as “APA” above”). The Compensation Committee exercised negative discretion to reduce the NEOs’ 2017 awards to be in line with the broad-basedcorporate annual cash incentive plan. Target payout amounts for each of the NEOs under the broad-basedcorporate annual cash incentive plan calculation were as follows: Mr. Kyle - $1,080,000; Mr. Fracassa - $375,000;$384,375; Mr. Coughlin - $386,281; Ms. Cheverine - $116,875; Mr. Myers - $181,864; and Mr. Burkhart - $318,570; and Mr. Myers - $148,909.$196,693. See the “Annual Cash Incentive” section on page 2937 for additional details. |
| (3) | The “NQSOs” amounts shown reflect nonqualified stock options granted in 2016.2017. All options granted to the NEOs during 2016except Ms. Cheverine were granted on February 11, 2016. All options were granted pursuant to the Long-Term Incentive Plan13, 2017 with an exercise price equal to the opening price on the date of grant,grant. Options granted to Ms. Cheverine were granted on May 30, 2017 in connection with her being hired as Executive Vice President, General Counsel and Secretary, with an exercise price equal to the closing price on the date of grant. All options were granted pursuant to the Long-Term Incentive Plan, have aten-year term and generally will generally become exercisable over four years in 25% increments on the anniversary of the date of grant. |
| (4) | The “Perf RSUs” amounts shown indicate aggregate threshold, target and maximum award opportunities for the performance-based restricted stock units covering the 2016-20182017-2019 cycle granted to each NEO in 20162017 under the Long-Term Incentive Plan. Threshold is reflected as the |
| minimum payout if the EPS metric payout is zero and the ROIC metric pays at threshold. See the description of the performance-based restricted stock units on page 32.40. |
| (5) | The amounts shown reflect the grant date fair market value of time-based restricted stock units, deferred shares, nonqualified options and performance-based restricted stock units granted in 2016,2017, calculated in accordance with FASB ASC Topic 718. The fair market value of time-based restricted stock units, deferred shares and performance-based restricted stock units is the opening price of our common shares on the date of grant multiplied by the number of shares granted. The fair market value of options is determined by using the Black-Scholes model. |
| (6) | The “Def Shares” amount shown reflects aone-time grant of deferred shares made to Ms. Cheverine on May 30, 2017 in connection with her being hired as Executive Vice President, General Counsel and Secretary. These shares vest in full on May 30, 2022, contingent on continued employment with the Company. |
| (7) | The “RSUs”, “NQSOs” and “Perf RSUs” for Mr. Burkhart were forfeited upon his resignation from the Company on August 11, 2017. The Compensation Committee exercised discretion to pay him a prorated “SEMPP” award through August 11, 2017. |
For more information regarding certain compensation arrangements with our NEOs, please refer to the “Potential Payments Upon Termination or Change in Control” section on page 56. For information regarding the amount of various compensation elements in proportion to total compensation, see the NEO pay mix charts in the “Compensation Discussion and Analysis” section on page 31.
OUTSTANDING EQUITY AWARDS AT 2016Outstanding Equity Awards at 2017YEAR-ENDYear-End
The following table sets forth information concerning unexercised Company options and stock awards that have not vested for each of our named executive officersNEOs as of December 31, 2016:2017:
| | | | | | | | | | | | | | | | | | | | |
| | Option Awards(1) | | Stock Awards |
Name | | Grant Date | | Number of Securities Underlying Unexercised Options | | Number of Securities Underlying Unexercised Options | | Option Exercise Price ($/share) | | Option Expiration Date | | Grant Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| | | | Exercisable | | Unexercisable | | | | | | | | | | | | | | |
Richard G. | | 02/08/2010 | | 4,275 | | 0 | | $16.34 | | 02/08/2020 | | 08/06/2012(2) | | 25,000 | | $992,500 | | | | |
Kyle | | 02/08/2011 | | 27,600 | | 0 | | $35.97 | | 02/08/2021 | | 02/13/2014(3) | | 29,400 | | $1,167,180 | | | | |
| | 02/09/2012 | | 26,200 | | 0 | | $37.31 | | 02/09/2022 | | 02/12/2015(4) | | 15,357 | | $609,673 | | | | |
| | 02/07/2013 | | 23,100 | | 7,700 | | $40.56 | | 02/07/2023 | | 02/12/2015(5) | | | | | | 51,175 | | $2,031,648 |
| | 02/13/2014 | | 54,400 | | 54,400 | | $41.15 | | 02/13/2024 | | 02/11/2016(4) | | 28,675 | | $1,138,398 | | | | |
| | 02/12/2015 | | 27,762 | | 83,288 | | $41.79 | | 02/12/2025 | | 02/11/2016(5) | | | | | | 71,675 | | $2,845,498 |
| | 02/11/2016 | | 0 | | 183,800 | | $27.75 | | 02/11/2026 | | | | | | | | | | |
Philip D. | | 02/04/2008 | | 5,000 | | 0 | | $22.13 | | 02/07/2018 | | 08/06/2012(2) | | 10,000 | | $397,000 | | | | |
Fracassa | | 02/08/2010 | | 10,000 | | 0 | | $16.34 | | 02/08/2020 | | 02/13/2014(3) | | 7,900 | | $313,630 | | | | |
| | 02/08/2011 | | 5,600 | | 0 | | $35.97 | | 02/08/2021 | | 02/12/2015(4) | | 3,394 | | $134,742 | | | | |
| | 02/09/2012 | | 6,000 | | 0 | | $37.31 | | 02/09/2022 | | 02/12/2015(5) | | | | | | 11,300 | | $448,610 |
| | 02/07/2013 | | 3,375 | | 1,125 | | $40.56 | | 02/07/2023 | | 02/11/2016(4) | | 6,350 | | $252,095 | | | | |
| | 02/13/2014 | | 9,700 | | 9,700 | | $41.15 | | 02/13/2024 | | 02/11/2016(5) | | | | | | 15,825 | | $628,253 |
| | 02/12/2015 | | 6,131 | | 18,394 | | $41.79 | | 02/12/2025 | | | | | | | | | | |
| | 02/11/2016 | | 0 | | 40,600 | | $27.75 | | 02/11/2026 | | | | | | | | | | |
Christopher A. | | 02/08/2010 | | 4,275 | | 0 | | $16.34 | | 02/08/2020 | | 08/06/2012(2) | | 25,000 | | $992,500 | | | | |
Coughlin | | 02/08/2011 | | 27,600 | | 0 | | $35.97 | | 02/08/2021 | | 02/13/2014(3) | | 14,400 | | $571,680 | | | | |
| | 02/09/2012 | | 26,200 | | 0 | | $37.31 | | 02/09/2022 | | 02/12/2015(4) | | 4,800 | | $190,560 | | | | |
| | 02/07/2013 | | 23,100 | | 7,700 | | $40.56 | | 02/07/2023 | | 02/12/2015(5) | | | | | | 16,000 | | $635,200 |
| | 02/13/2014 | | 17,700 | | 17,700 | | $41.15 | | 02/13/2024 | | 02/11/2016(4) | | 8,975 | | $356,308 | | | | |
| | 02/12/2015 | | 8,681 | | 26,044 | | $41.79 | | 02/12/2025 | | 02/11/2016(5) | | | | | | 22,425 | | $890,273 |
| | 02/11/2016 | | 0 | | 57,475 | | $27.75 | | 02/11/2026 | | | | | | | | | | |
William R. | | 02/08/2011 | | 11,600 | | 0 | | $35.97 | | 02/08/2021 | | 02/13/2014(3) | | 6,600 | | $262,020 | | | | |
Burkhart | | 02/09/2012 | | 13,700 | | 0 | | $37.31 | | 02/09/2022 | | 08/04/2014(2) | | 10,000 | | $397,000 | | | | |
| | 02/07/2013 | | 10,800 | | 3,600 | | $40.56 | | 02/07/2023 | | 02/12/2015(4) | | 2,194 | | $87,102 | | | | |
| | 02/13/2014 | | 8,050 | | 8,050 | | $41.15 | | 02/13/2024 | | 02/12/2015(5) | | | | | | 7,325 | | $290,803 |
| | 02/12/2015 | | 3,968 | | 11,907 | | $41.79 | | 02/12/2025 | | 02/11/2016(4) | | 4,100 | | $ 162,770 | | | | |
| | 02/11/2016 | | 0 | | 26,250 | | $27.75 | | 02/11/2026 | | 02/11/2016(5) | | | | | | 10,250 | | $406,925 |
Ronald J. | | 02/08/2010 | | 3,375 | | 0 | | $16.34 | | 02/08/2020 | | 02/13/2014(3) | | 2,300 | | $ 91,310 | | | | |
Myers | | 02/08/2011 | | 3,800 | | 0 | | $35.97 | | 02/08/2021 | | 02/12/2015(4) | | 975 | | $ 38,708 | | | | |
| | 02/09/2012 | | 5,100 | | 0 | | $37.31 | | 02/09/2022 | | 02/12/2015(5) | | | | | | 3,225 | | $128,033 |
| | 02/07/2013 | | 4,275 | | 1,425 | | $40.56 | | 02/07/2023 | | 02/11/2016(4) | | 1,825 | | $72,453 | | | | |
| | 02/13/2014 | | 1,950 | | 1,950 | | $41.15 | | 02/13/2024 | | 02/11/2016(5) | | | | | | 4,525 | | $179,643 |
| | 02/12/2015 | | 1,743 | | 5,232 | | $41.79 | | 02/12/2025 | | | | | | | | | | |
| | 02/11/2016 | | 0 | | 11,550 | | $27.75 | | 02/11/2026 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards(1) | | | | | | | | | | | | | | | Equity Awards | | | | |
Name | | Grant Date | | | Number of Securities Underlying Unexercised Options | | | Number of Securities Underlying Unexercised Options | | | Option Exercise Price ($/share) | | | Option Expiration Date | | | Grant Date | | | Number of Shares or Units of Stock That Have Not Vested | | | Market Value of Shares or Units of Stock That Have Not Vested | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |
| | | | | Exercisable | | | Unexercisable | | | | | | | | | | | | | | | | | | | | | | |
Richard G. Kyle | | | 02/08/2010 | | | | 4,275 | | | | - | | | | $16.34 | | | | 02/08/2020 | | | | 02/12/2015 | (2) | | | 10,238 | | | | $503,198 | | | | - | | | | - | |
| | | 02/08/2011 | | | | 17,000 | | | | - | | | | $35.97 | | | | 02/08/2021 | | | | 02/11/2016 | (2) | | | 21,507 | | | | $1,057,069 | | | | - | | | | - | |
| | | 02/09/2012 | | | | 26,200 | | | | - | | | | $37.31 | | | | 02/09/2022 | | | | 02/11/2016 | (3) | | | - | | | | - | | | | 71,675 | | | | $3,522,826 | |
| | | 02/07/2013 | | | | 30,800 | | | | - | | | | $40.56 | | | | 02/07/2023 | | | | 02/13/2017 | (2) | | | 18,350 | | | | $901,903 | | | | - | | | | - | |
| | | 02/13/2014 | | | | 81,600 | | | | 27,200 | | | | $41.15 | | | | 02/13/2024 | | | | 02/13/2017 | (3) | | | - | | | | - | | | | 45,875 | | | | $2,254,756 | |
| | | 02/12/2015 | | | | 55,525 | | | | 55,525 | | | | $41.79 | | | | 02/12/2025 | | | | | | | | | | | | | | | | | | | | | |
| | | 02/11/2016 | | | | 45,950 | | | | 137,850 | | | | $27.75 | | | | 02/11/2026 | | | | | | | | | | | | | | | | | | | | | |
| | | 02/13/2017 | | | | - | | | | 117,750 | | | | $45.35 | | | | 02/13/2017 | | | | | | | | | | | | | | | | | | | | | |
Philip D. Fracassa | | | 02/08/2010 | | | | 10,000 | | | | - | | | | $16.34 | | | | 02/08/2020 | | | | 02/12/2015 | (2) | | | 2,263 | | | | $111,226 | | | | - | | | | - | |
| | | 02/08/2011 | | | | 5,600 | | | | - | | | | $35.97 | | | | 02/08/2021 | | | | 02/11/2016 | (2) | | | 4,763 | | | | $234,101 | | | | - | | | | - | |
| | | 02/09/2012 | | | | 6,000 | | | | - | | | | $37.31 | | | | 02/09/2022 | | | | 02/11/2016 | (3) | | | - | | | | - | | | | 15,825 | | | | $777,799 | |
| | | 02/07/2013 | | | | 4,500 | | | | - | | | | $40.56 | | | | 02/07/2023 | | | | 02/13/2017 | (2) | | | 4,075 | | | | $200,286 | | | | - | | | | - | |
| | | 02/13/2014 | | | | 14,550 | | | | 4,850 | | | | $41.15 | | | | 02/13/2024 | | | | 02/13/2017 | (3) | | | - | | | | - | | | | 10,150 | | | | $498,873 | |
| | | 02/12/2015 | | | | 12,262 | | | | 12,263 | | | | $41.79 | | | | 02/12/2025 | | | | | | | | | | | | | | | | | | | | | |
| | | 02/11/2016 | | | | 10,150 | | | | 30,450 | | | | $27.75 | | | | 02/11/2026 | | | | | | | | | | | | | | | | | | | | | |
| | | 02/13/2017 | | | | - | | | | 26,025 | | | | $45.35 | | | | 02/13/2017 | | | | | | | | | | | | | | | | | | | | | |
Christopher A. Coughlin | | | 02/08/2011 | | | | 27,600 | | | | - | | | | $35.97 | | | | 02/08/2021 | | | | 02/12/2015 | (2) | | | 3,200 | | | | $157,280 | | | | - | | | | - | |
| | | 02/09/2012 | | | | 26,200 | | | | - | | | | $37.31 | | | | 02/09/2022 | | | | 02/11/2016 | (2) | | | 6,732 | | | | $330,878 | | | | - | | | | - | |
| | | 02/07/2013 | | | | 30,800 | | | | - | | | | $40.56 | | | | 02/07/2023 | | | | 02/11/2016 | (3) | | | - | | | | - | | | | 22,425 | | | | $1,102,189 | |
| | | 02/13/2014 | | | | 26,550 | | | | 8,850 | | | | $41.15 | | | | 02/13/2024 | | | | 02/13/2017 | (2) | | | 5,750 | | | | $282,613 | | | | - | | | | - | |
| | | 02/12/2015 | | | | 17,362 | | | | 17,363 | | | | $41.79 | | | | 02/12/2025 | | | | 02/13/2017 | (3) | | | - | | | | - | | | | 14,350 | | | | $705,303 | |
| | | 02/11/2016 | | | | 14,368 | | | | 43,107 | | | | $27.75 | | | | 02/11/2026 | | | | | | | | | | | | | | | | | | | | | |
| | | 02/13/2017 | | | | - | | | | 36,825 | | | | $45.35 | | | | 02/13/2017 | | | | | | | | | | | | | | | | | | | | | |
Carolyn E. Cheverine | | | 05/30/2017 | | | | - | | | | 35,441 | | | | $46.40 | | | | 05/30/2027 | | | | 5/30/2017 | (4) | | | 11,961 | | | | $587,883 | | | | - | | | | - | |
Ronald J. Myers | | | 02/08/2011 | | | | 3,800 | | | | - | | | | $35.97 | | | | 02/08/2021 | | | | 02/12/2015 | (2) | | | 650 | | | | $31,948 | | | | - | | | | - | |
| | | 02/09/2012 | | | | 5,100 | | | | - | | | | $37.31 | | | | 02/09/2022 | | | | 02/11/2016 | (2) | | | 1,369 | | | | $67,286 | | | | - | | | | - | |
| | | 02/07/2013 | | | | 5,700 | | | | - | | | | $40.56 | | | | 02/07/2023 | | | | 02/11/2016 | (3) | | | - | | | | - | | | | 4,525 | | | | $222,404 | |
| | | 02/13/2014 | | | | 2,925 | | | | 975 | | | | $41.15 | | | | 02/13/2024 | | | | 02/13/2017 | (2) | | | 1,825 | | | | $89,699 | | | | - | | | | - | |
| | | 02/12/2015 | | | | 3,487 | | | | 3,488 | | | | $41.79 | | | | 02/12/2025 | | | | 02/13/2017 | (3) | | | - | | | | - | | | | 4,550 | | | | $223,633 | |
| | | 02/11/2016 | | | | - | | | | 8,663 | | | | $27.75 | | | | 02/11/2026 | | | | | | | | | | | | | | | | | | | | | |
| | | 02/13/2017 | | | | - | | | | 11,675 | | | | $45.35 | | | | 02/13/2017 | | | | | | | | | | | | | | | | | | | | | |
William R. Burkhart | | | - | | | | - | | | | - | | | | - | | | | - | | | | 08/04/2014 | (4) | | | 9,663 | | | | $474,936 | | | | - | | | | - | |
| (1) | All option awards shown are nonqualified stock options that vest 25% per year over the four-year period from the date of grant. |
| (2) | Deferred shares vest 100% on the fifth anniversary of the date of grant. |
| (3) | The time-basedTime-based restricted stock units granted on February 13, 2014 vest 100% on the third anniversary of the date of grant. |
| (4) | The time-based restricted stock units granted on February 12, 2015 and February 11, 2016 vest 25% per year over the four-year period from the date of grant. |
| (5)(3) | Performance-based restricted stock units granted on February 12, 2015 and February 11, 2016 vest at the end of the three-year performance cycle, contingent uponand are based on the achievement of performance requirements. |
| (4) | Deferred shares vest 100% on the fifth anniversary of the date of grant. To help facilitate an effective transition to Ms. Cheverine, the Compensation Committee approved an amendment to modify the original deferred share award, granted on August 4, 2014 to Mr. Burkhart, to allow it to continue to vest under the original terms following Mr. Burkhart’s resignation from the Company on August 11, 2017 as if he had remained in continuous employment. The balance of Mr. Burkhart’s unvested equity holdings were forfeited upon his resignation from the Company. |
The market value of the stock awards shown in the table above was determined based upon the closing price of our common shares on December 31, 2016,29, 2017, which was $39.70.$49.15.
2016 OPTION EXERCISES AND STOCK VESTED2017 Option Exercises and Stock Vested
The following table sets forth information with respect to the exercise of stock options by and vesting of stock-based
other equity-based awards for our named executive officersNEOs during 2016:2017:
| | | Option Awards | | Stock Awards(2) | | Option Awards | | | Equity Awards(2) | |
Name | | Number of Shares Acquired on Exercise | | Value Realized on Exercise(1) | | Number of Shares Acquired on Vesting | | Value Realized on Vesting | | Number of Shares Acquired on Exercise | | | Value Realized on Exercise(1) | | | Number of Shares Acquired on Vesting | | | Value Realized on Vesting | |
| | | | |
Richard G. Kyle | | 0 | | $0 | | 5,118 | | $149,292 | | | 10,600 | | | | $149,778 | | | | 94,936 | | | | $4,301,530 | |
| | | | |
Philip D. Fracassa | | 2,500 | | $30,088 | | 1,131 | | $32,991 | | | 5,000 | | | | $112,725 | | | | 26,856 | | | | $1,215,414 | |
| | | | |
Christopher A. Coughlin | | 0 | | $0 | | 1,600 | | $46,672 | | | 4,275 | | | | $120,757 | | | | 52,075 | | | | $2,353,996 | |
| | | | |
Carolyn E. Cheverine | | | | - | | | | - | | | | - | | | | - | |
| | | | |
Ronald J. Myers | | | | 6,262 | | | | $166,157 | | | | 4,861 | | | | $221,266 | |
| | | | |
William R. Burkhart | | 5,050 | | $90,673 | | 731 | | $21,323 | | | 66,274 | | | | $587,354 | | | | 8,356 | | | | $381,981 | |
Ronald J. Myers | | 0 | | $0 | | 325 | | $9,480 | |
| (1) | The value realized on the exercise of options is the difference between the exercise price and the fair market value of our common shares onat the datetime of exercise. Fair market value is determined by a real-time trading quote from the NYSE at the time of exercise. |
| (2) | Stock awards include time-based restricted stock units.units and performance-based restricted stock units (except for Mr. Burkhart). The value realized on vesting for performance-based restricted stock units is the number of shares that vested in 2017 multiplied by the fair market value of our common shares on the date of vesting. Fair market value for performance-based restricted stock units is determined by the average of the high and low price of our common shares on the date of vesting.vesting, which is the date that the Compensation Committee approves the performance score payout associated with such award. Amounts shown also include the impact from: (a) aone-time grant of three-year cliff vesting time-based restricted stock units that were granted by the Compensation Committee in February 2014 (for all NEOs except Ms. Cheverine) in lieu of performance-based restricted stock units (that would ordinarily be deemed to have vested in 2016), due to the Spinoff and the difficulties associated with setting meaningful multi-year performance targets; and (b) aone-time grant of deferred shares that were granted by the Compensation Committee in August 2012 that cliff vested five years from the date of grant (for Mr. Kyle, Mr. Fracassa and Mr. Coughlin). |
PENSION BENEFITS2017 Pension Benefits Table
Qualified Plan
During 2003, the Company moved from a defined benefit retirement program (the “Qualified Plan”) to a defined contribution retirement program for eligible U.S. based salaried employees hired on or after January 1, 2004, as well as for current salaried employees whoseThe age, plus yearslength of service with the Company equaled less than 50 as of December 31, 2003. Salaried employees whose age plus years of service equaled or exceeded 50 as of December 31, 2003 participate in a defined benefit plan with a formula of 0.75% per year of service times average earnings, including base salary and cash annual incentive compensation, for the highest fivenon-consecutive years of the ten years preceding retirement (“Final Average Earnings”).
The benefit is generally payable beginning at age 65 for the lifetime of the employee, with alternative forms of payment available with actuarial adjustments. Participants may retire early for purposes of the Qualified Plan if they meet any of the following eligibility requirements:
| ● | | Age 62 and 15 years of service; |
| ● | | Age 60 and 25 years of service; or |
| ● | | Any age and 30 years of service. |
In addition, participants age 55 with at least 15 years of service may retire and receive the portion of their Qualified Plan benefit attributable to service earned after 2003. As of December 31, 2016, Mr. Coughlin and Mr. Myers were the only NEOs who were eligible for early retirement.
Benefits for service after December 31, 1991 are reduced for early commencement at a rate of 3% per year before age 60 for the portion of the benefit attributable to service earned between 1992 and 2003, and 4% per year before age 62 for the portion of the benefit attributable to service earned after 2003.
Supplemental Pension Plan
Consistent with the retirement program changes the Company implemented for its salaried employees generally, the Company also reviewed and modified the Supplemental Pension Plan, effective January 1, 2004. Supplemental retirement benefits for executive officers who have an Employee Excess Benefits Agreement will be calculated using a target benefit of 60% of Final Average Earnings, offset by any defined benefit plan payments provided by the Company and the aggregate earnings opportunity provided by any Company contributions under the core defined contribution program, the SIP Plan and thePost-Tax Savings Plan. For all NEOs other than Mr. Kyle and Mr. Myers, the officer must have at least 10 years of Company service to earn the full supplemental benefit. Mr. Kyle must have at least 15 years of Company service. Mr. Myers does not have an Excess Benefits Agreement (to align with market trends, in 2014 the Company made a decision to limit future participation in the Employee Excess Benefits program to those who were already participants), although he does participate in the restoration component of the Supplemental Pension Plan. Benefits under the Excess Benefits Agreement will be prorated for Company service of less than 10 years (15 years for Mr. Kyle). The supplemental benefit vests after five years of(including service as an officer of the Company, with an unreducedCompany), and eligibility start date of each participant can have a significant effect on his or her benefit payablecalculation, in part because the programs have changed over time. In addition, because benefits under the Company’s defined benefit programs are based on or after age 62. Early retirement at age 55 with at least 15base salary and annual cash incentive compensation for the five highestnon-consecutive years (out of Company service will be available, but if benefits are commenced early, they will be reduced by 4% per year for each year of early commencement prior to age 62.
For both the Qualified Planfinal ten years), pension values can increase significantly as salary and the Supplemental Pension Plan, only actual years of service are counted in calculatingannual cash incentive compensation increases. Annual pension benefits, exceptvalues in the case of involuntary termination without cause, in which case up2017 Summary Compensation Table also are influenced by external factors such as interest rates and changes to two additional years of service will be credited.mortality assumptions.
2016 PENSION BENEFITS TABLE
The following table sets forth the number of years of credited service and actuarial value of the defined benefit pension plans for our named executive officersNEOs as of December 31, 2016:2017 (see the“Retirement Programs” section on page 42 for additional details):
| Name | | Plan Name | | Number of Years of Credited Service | | | Present Value of Accumulated Benefit(1) | | | Plan Name | | Number of Years of Credited Service | | Present Value of Accumulated Benefit (1) |
| Richard G. Kyle(2) | | Supplemental Plan | | | 10.7 | | | | $3,984,000 | | | Supplemental Plan | | | 11.7 | | | | $5,690,000 | |
| | | | Qualified Plan | | | | - | | | | | - | |
| | Qualified Plan | | | 0.0 | | | | $0 | | |
Philip D. Fracassa(2) | | Supplemental Plan | | | 11.2 | | | | $2,303,000 | | | Supplemental Plan | | | 12.2 | | | | $2,973,000 | |
| | Qualified Plan | | | 0.0 | | | | $0 | | |
| | | Qualified Plan | | | | - | | | | | - | |
| Christopher A. Coughlin | | Supplemental Plan | | | 32.5 | | | | $4,356,000 | | | Supplemental Plan | | | 33.5 | | | | $5,036,000 | |
| | | | Qualified Plan | | | 33.5 | | | | $922,000 | |
| Carolyn E. Cheverine(2) | | | Supplemental Plan | | | | - | | | | | - | |
| | | | Qualified Plan | | | | - | | | | | - | |
| Ronald J. Myers | | | Supplemental Plan | | | 35.6 | | | | $452,000 | |
| | | | Qualified Plan | | | 35.6 | | | | $1,048,000 | |
| | Qualified Plan | | | 32.5 | | | | $769,000 | | |
William R. Burkhart(3) | | Supplemental Plan | | | 22.3 | | | | $2,789,000 | | | Supplemental Plan | | | 22.8 | | | | $4,199,000 | |
| | Qualified Plan | | | 9.3 | | | | $226,000 | | |
Ronald J. Myers | | Supplemental Plan | | | 34.6 | | | | $369,000 | | |
| | Qualified Plan | | | 34.6 | | | | $885,000 | | | Qualified Plan | | | | 9.3 | | | | | $226,000 | |
| (1) | The “Present Value of Accumulated Benefit” is the present value as of December 31, 20162017 of the pension benefits earned as of such date that would be payable under that plan for the life of the executive, beginning at age 62.62 (except Mr. Burkhart). Age 62 is the earliest age an unreduced benefit is payable from the plans. The assumptions used to determine the present value include a 4.34%3.80% discount rate and mortality assumptions according to theRP-2014MP-2017 Mortality Table. Benefits were determined assuming no probability of termination, retirement, death or disability before age 62. For 2016,2017, the Internal Revenue Code pay limit was $265,000$270,000 and the maximum benefit was $210,000.$215,000. |
SeeNote 14 – Retirement Benefit Plans in the Notes to the Consolidated Financial Statement in the Company’s Annual Report on Form10-K for the fiscal year ending December 31, 2017 for additional details about the assumptions used to determine fair value.
| (2) | Because neither Mr. Kyle nor Mr. Fracassa were employed by the Company as of December 31, 2003, they did not accumulate any service under the Qualified Plan. Ms. Cheverine is not a participant in the Supplemental Plan or Qualified Plan as these plans are closed to new entrants. |
| (3) | BecauseThe values for Mr. Burkhart did not have a combination of age and service withreflect actual benefit amounts due to his resignation from the Company that equaled or exceeded 50 as of December 31, 2003, he does not accumulate any service under the Qualified Plan after December 31, 2003.on August 11, 2017. |
2016 NONQUALIFIED DEFERRED COMPENSATION2017 Nonqualified Deferred Compensation
The table below sets forth information regarding Deferred Compensation Plan contributions, earnings and withdrawals during 20162017 and the account balances as of December 31, 20162017 for the named executive officers:NEOs:
| Name | | Executive Contributions in 2016(1) | | Company Contributions in 2016(1) | | Aggregate Earnings in 2016 (2) | | Aggregate Withdrawals/ Distributions in 2016 | | Aggregate Balance at December 31, 2016(3) | | | | Executive Contributions in 2017(1) | | Company Contributions in 2017(1) | | Aggregate Earnings in 2017(2) | | Aggregate Withdrawals/ Distributions in 2017 | | Aggregate Balance at December 31, 2017(3) |
| Richard G. Kyle | | $0 | | $0 | | td0,298 | | $0 | | td17,920 | | | | | - | | | | | - | | | | td1,304 | | | | | - | | | | td29,223 | |
| Philip D. Fracassa | | td7,697 | | $31,025 | | td1,335 | | $0 | | td84,717 | | | | | - | | | | | - | | | | td4,768 | | | | | - | | | | td99,485 | |
| Christopher A. Coughlin | | $0 | | $0 | | $0 | | $0 | | $0 | | | | | | - | | | | | - | | | | | - | | | | | - | | | | | - | |
| Carolyn E. Cheverine | | | | | - | | | | | - | | | | | - | | | | | - | | | | | - | |
| Ronald J. Myers | | | | | - | | | | | - | | | | $9,330 | | | | | - | | | | td89,209 | |
| William R. Burkhart | | $0 | | $0 | | $0 | | $0 | | $0 | | | | | | - | | | | | - | | | | | - | | | | | - | | | | | - | |
Ronald J. Myers | | $0 | | $0 | | $8,500 | | $0 | | td79,879 | | |
| (1) | Amounts shown as executive contributions or Company contributions in 20162017 were reported in the 20162017 Summary Compensation Table. |
| (2) | This column includes interest earned from cash deferrals. The earnings during this year and previous years were not above market or preferential; therefore these amounts were not included in the 20162017 Summary Compensation Table. |
| (3) | Includes $170,592 for Mr. Kyle, $183,392$242,114 for Mr. Fracassa, and $87,237 for Mr. Myers that was previously reported as compensation in the Summary Compensation Table for previousprior years (or would have been if the recipient had been an NEO in such year). |
The Deferred Compensation Plan allows certain employees, including the NEOs, to defer receipt on apre-tax basis of a portion of their salary, employee or Company 401(k) or core defined contributions in excess of tax limits and/or incentive compensation payable in cash or common shares (other than restricted shares or options) until a specified point in the future. Cash deferrals earn interest quarterly at a rate based on the prime rate plus one percent. The Deferred Compensation Plan is not funded by the Company and participants have an unsecured contractual commitment by the Company to pay the amounts due under the plan. When such payments are due, they will be distributed from the Company’s general assets. In the event of a change in control in the Company, as defined in the plan, participants are entitled to receive deferred amounts immediately. For further information, see the “Retirement Programs” section on page 42.
POTENTIAL PAYMENTS UPON TERMINATION ORCHANGE-IN-CONTROLPotential Payments Upon Termination or Change in Control
We have entered into severance agreements with each of the NEOs that provide for compensation in the event of termination of employment under certain circumstances (the “Severance Agreements”). In addition, the NEOs are entitled to post-termination payments or benefits under agreements entered into under the Long-Term Incentive Plan and under our retirement and benefit plans underin certain circumstances.situations. The following circumstances would trigger post-termination payments to the NEOs: change in control followed by certain events described below;below, involuntary termination without cause; retirement;cause, retirement, permanent disability;disability and death. All scenarios are assumed to have aoccurred on December 31, 2016 effective date.
2017.Change Inin Control
Under the Severance Agreements with the NEOs, when certain events occur, such as a reduction in the NEO’s responsibilities or termination of the NEO’s employment without cause, within two years following a change in control of the Company (as defined in the Severance Agreements), each NEO (other than Mr. Myers) will be entitled to receive payment in an amount equal to a multiple that is set forth in the table below for the respective NEO of three times the sum of: (1) the greater of (a) the NEO’s annual base salary in effect prior to the termination or (b) the NEO’s annual base salary in effect prior to the change in control and (2) the greater of (a) the NEO’s target annual cash incentive compensation for the year in which the NEO terminates employment and (b) the NEO’s target annual cash incentive compensation for the year in which the change in control occurs. Mr. Myers is entitled to payment in an amount calculated in the same manner as above and triggered under the same circumstances, but with a 1.5 times multiple.
| | | | |
NEO | | Change In Control Multiple | | Additional Service Years |
Mr. Kyle | | 3.0x | | 3 years |
Mr. Fracassa | | 3.0x | | 3 years |
Mr. Coughlin | | 3.0x | | 3 years |
Ms. Cheverine | | 2.0x | | 2 years |
Mr. Myers | | 1.5x | | 1.5 years |
In addition, theeach NEO who is eligible for a supplemental retirement benefit would receive a lump sum amount representing the supplemental retirement benefit.amount. The lump sum amount is determined by calculating the benefit under each of the Qualified Plan and the Supplemental Pension Plan assuming the NEO continued to earn service for three additionalthe number of years (1.5 years for Mr. Myers)designated in the Change In Control table above with annual earnings during those years equal to the compensation described above. The lump sum amount is reduced by the lump sum equivalent of the
benefit payable from the Qualified Plan. This lump sum is determined based on the mortality table and interest rate promulgated by the IRS under Section 417(e)(3) of the Code.
The NEO also would also receive certain benefits based on contributions that would have been made to the SIP Plan and thePost-Tax Savings Plan during the three-year(1.5-year for Mr. Myers) period. AnyChange in Control period designated in the table above. At the time the conditions are met after a change in control, any unvested equity-based grants would vest and become nonforfeitable. Thenonforfeitable and the NEO would have three years to exercise all stock options. In the event of a change in control, the amounts payable under the Severance Agreements would become secured by a trust arrangement. The NEO also would also be entitled to continuation of health and welfare benefits through the severance period and career outplacement services.
At its meeting on December 9, 2010, the Compensation Committee approved a new form of Severance Agreement that eliminated the excise taxgross-up provision for new participants or existing participants moving into higher-level positions. This new form of agreement provides that the participant can choose the “best net” benefit of either: (1) paying all excise taxes incurred with respect to thechange-in-control benefits, without agross-up by the Company; or (2) accepting aggregatechange-in-control benefits that do not exceed the excise tax threshold. All of our NEOs have entered into Severance Agreements that do not contain thean excise taxgross-up provision.
Voluntary Termination
TheIf an NEO voluntarily terminates his or her employment with the Company, provideswe generally provide no severance, benefits, perquisites or vesting of any equity-based grants, inalthough the case of a voluntary termination.Compensation Committee reserves the right to make adjustments where warranted.
Involuntary Termination With Cause
The Company provides no severance, benefits, perquisites or vesting of any equity-based grants in the case where an NEO is terminated by the Company with cause. As provided in the Severance Agreements, termination with cause can occur only in the event that the NEO has committed any of the following: an intentional act of fraud, embezzlement or theft in connection with his duties with the Company; intentional wrongful disclosure of secret processes or confidential information of the Company or a Company subsidiary; or intentional wrongful engagement in any Competitive Activity (as defined in the Severance Agreements) whichthat would constitute a material breach of the NEO’s duty of loyalty to the Company.
If the Company terminates an NEO’s employment for cause, no benefit is payable from any of the nonqualified pension plans.
Involuntary Termination Without Cause
In the case of an involuntary termination without cause other than in connection with a change in control, each NEO is entitled to severance equal to 2.0 times (Mr. Kyle)/1.5 times (Messrs. Fracassa, Coughlin and Burkhart)/1.0 times (Mr. Myers)a multiple that is set forth in the table below for the respective NEO of the sum of: (1) the NEO’s base salary and (2) an amount equal to the highest annual cash incentive payout percentage during the preceding five years (not to exceed 100%) multiplied by the target annual cash incentive compensation for the year in which the NEO is terminated. As consideration for providing severance benefits, the Company receives confidentiality andnon-compete covenants from the NEOs, as well as a release of liability for all claims against the Company. Each NEO also is also entitled to continuation of health and welfare benefits through the severance period and career outplacement services. Equity-based grants vest through the period of time represented by the cash severance multiple in the case of an involuntary termination without cause, with up to three years to exercise stock options.
| | | | | |
NEO | | Severance Multiple |
Mr. Kyle | | | | 2.0x | |
Mr. Fracassa | | | | 1.5x | |
Mr. Coughlin | | | | 1.5x | |
Ms. Cheverine | | | | 1.0x | |
Mr. Myers | | | | 1.0x | |
The values shown in the table below for the retirement benefits (where eligible) are payable in the same form and manner as discussed in the narrative following the 20162017 Pension Benefits Table. In the event of involuntary termination without cause, the benefit is determined and payable as described in the Pension Benefits“Retirement Programs” discussion on page 41,42, but with up to two additional years of service credit.
Retirement
“Retirement” under the Long-Term Incentive Plan (for grants made in 2017 and prior years) infers retirement with the Company’s consent, which means either: (1) retirement of the NEO prior to age 62, if the Compensation Committee determines that such retirement is for the convenience of the Company; or (2) retirement of the NEO at or after age 62.
In addition to retirement benefits shown in the 2016 Pension Benefits Table (which are not shown in the following table Treatment of termination scenarios), benefitsequity awards for NEOs who retire with the Company’s consent include:include normal vesting of Long-Term Incentive Plan awards as if the officer had remained in the continuous employ of the Company (except performance-based restricted stock units, which are prorated and paid at the end of the performance period) and adjustments.
Amounts shown in the retirement column in the Termination Scenarios table below are for NEOs who are eligible to retire under the qualified defined benefit pension plan or under an Individual Excess Benefit Agreement as of December 31, 2017 assuming the NEOs immediately retire. The amounts shown are in addition to the corresponding amounts reflected in the pension benefits table on page 54 (which assumes retirement benefits if retiring prior toof the NEO at age 62.62). See the “Retirement Programs” section on page 42 for additional details.
Death or Permanent Disability
“Permanent Disability” occurs if an NEO qualifies for permanent disability benefits under a disability plan or program of the Company or, in the absence of a disability plan or program of the Company, under a government-sponsored disability program.
Benefits for NEOs who die while actively employed are payable to the surviving spouse from the defined benefit pension plans at the NEO’s normal retirement date (or on a reduced basis at an early retirement date) if the NEO had at least five years of service.. The benefit is equal to 50% of the benefit payable if the NEO had terminated employment on the date of his death, survived to the payment date (as elected by spouse), elected the 50% joint and survivor form of payment and died the next day. If the NEO has at least 15 years of service at time of death, the benefit is equal to 50% of the accrued benefit at time of death payable immediately, but with any applicable early commencement reduction. For NEOs appointed on or before 2003, a death benefit is also payable to the named beneficiary of the executive officer.
All equity-based Long-Term Incentive Plan grants immediately vest in the event of death or permanent disability, except performance-based restricted stock units, which are prorated and paid at the end of the performance period. In the case of disability, the employee has up to five years to exercise stock options. There is a five-year expiration period in the case of death for the survivor to exercise stock options.
Termination Scenarios
| | | | | | | | | | | | |
Mr. Kyle |
| | Voluntary Resignation | | Termination With Cause | | Retirement(6) | | Death & Disability | | Termination Without Cause | | Change in Control |
Cash Severance(1) | | $0 | | $0 | | | | $0 | | $3,960,000 | | $5,940,000 |
Equity(2) | | $0 | | $0 | | | | $10,981,305 | | $8,636,401 | | $10,432,203 |
Retirement Benefits (3) | | $0 | | $0 | | | | $0 | | $962,000 | | $4,414,000 |
Other Benefits(4) | | $0 | | $0 | | | | $0 | | $53,000 | | $79,500 |
Excise TaxGross-Up(5) | | | | | | | | | | | | $0 |
Total | | $0 | | $0 | | $0 | | $10,981,305 | | $13,611,401 | | $20,865,703 |
Mr. Fracassa |
| | Voluntary Resignation | | Termination With Cause | | Retirement(6) | | Death & Disability | | Termination Without Cause | | Change in Control |
Cash Severance(1) | | $0 | | $0 | | | | $0 | | $1,312,500 | | $2,625,000 |
Equity(2) | | $0 | | $0 | | | | $2,659,499 | | $2,141,198 | | $2,538,207 |
Retirement Benefits (3) | | $0 | | $0 | | | | $0 | | $0 | | $1,135,000 |
Other Benefits(4) | | $0 | | $0 | | | | $0 | | $39,750 | | $79,500 |
Excise TaxGross-Up(5) | | | | | | | | | | | | $0 |
Total | | $0 | | $0 | | $0 | | $2,659,499 | | $3,493,448 | | $6,377,707 |
Mr. Coughlin |
| | Voluntary Resignation | | Termination With Cause | | Retirement(6) | | Death & Disability | | Termination Without Cause | | Change in Control |
Cash Severance(1) | | $0 | | $0 | | $0 | | $0 | | $1,351,983 | | $2,703,965 |
Equity(2) | | $0 | | $0 | | $0 | | $4,323,346 | | $2,597,335 | | $4,151,637 |
Retirement Benefits (3) | | $0 | | $0 | | $707,000 | | $0 | | $0 | | $148,000 |
Other Benefits(4) | | $0 | | $0 | | $0 | | $0 | | $39,750 | | $79,500 |
Excise TaxGross-Up(5) | | | | | | | | | | | | $0 |
Total | | $0 | | $0 | | $707,000 | | $4,323,346 | | $3,989,068 | | $7,083,102 |
Mr. Burkhart |
| | Voluntary Resignation | | Termination With Cause | | Retirement(6) | | Death & Disability | | Termination Without Cause | | Change in Control |
Cash Severance(1) | | $0 | | $0 | | | | $0 | | $1,160,505 | | $2,321,010 |
Equity(2) | | $0 | | $0 | | | | $1,920,307 | | $1,188,170 | | $1,841,879 |
Retirement Benefits (3) | | $0 | | $0 | | | | $0 | | $0 | | $205,000 |
Other Benefits(4) | | $0 | | $0 | | | | $570,000 | | $39,750 | | $79,500 |
Excise TaxGross-Up(5) | | | | | | | | | | | | $0 |
Total | | $0 | | $0 | | $0 | | $2,490,307 | | $2,388,425 | | $4,447,389 |
Mr. Myers |
| | Voluntary Resignation | | Termination With Cause | | Retirement(6) | | Death & Disability | | Termination Without Cause | | Change in Control |
Cash Severance(1) | | $0 | | $0 | | $0 | | $0 | | $465,278 | | $697,916 |
Equity(2) | | $0 | | $0 | | $0 | | $648,168 | | $500,034 | | $613,656 |
Retirement Benefits (3) | | $0 | | $0 | | $170,000 | | $0 | | $0 | | $217,000 |
Other Benefits(4) | | $0 | | $0 | | $0 | | $0 | | $26,500 | | $39,750 |
Excise TaxGross-Up(5) | | | | | | | | | | | | $0 |
Total | | $0 | | $0 | | $170,000 | | $648,168 | | $991,812 | | $1,568,322 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Mr. Kyle | |
| | | | | | |
| | Voluntary Resignation | | | Termination With Cause | | | Retirement(5) | | | Death & Disability | | | Termination Without Cause | | | Change in Control | |
| | | | | | |
Cash Severance(1) | | | - | | | | - | | | | - | | | | - | | | | $3,960,000 | | | | $5,940,000 | |
| | | | | | |
Equity(2) | | | - | | | | - | | | | - | | | | $12,263,456 | | | | $10,253,093 | | | | $12,151,591 | |
| | | | | | |
Retirement Benefits (3) | | | - | | | | - | | | | - | | | | - | | | | $1,214,000 | | | | $4,990,000 | |
| | | | | | |
Other Benefits(4) | | | - | | | | - | | | | - | | | | - | | | | $53,000 | | | | $79,500 | |
| | | | | | |
Total | | | - | | | | - | | | | - | | | | $12,263,456 | | | | $15,480,093 | | | | $23,161,091 | |
|
Mr. Fracassa | |
| | | | | | |
| | Voluntary Resignation | | | Termination With Cause | | | Retirement(5) | | | Death & Disability | | | Termination Without Cause | | | Change in Control | |
| | | | | | |
Cash Severance(1) | | | - | | | | - | | | | - | | | | - | | | | $1,351,875 | | | | $2,703,750 | |
| | | | | | |
Equity(2) | | | - | | | | - | | | | - | | | | $2,701,866 | | | | $2,173,827 | | | | $2,677,139 | |
| | | | | | |
Retirement Benefits (3) | | | - | | | | - | | | | - | | | | - | | | | - | | | | $1,242,000 | |
| | | | | | |
Other Benefits(4) | | | - | | | | - | | | | - | | | | - | | | | $39,750 | | | | $79,500 | |
| | | | | | |
Total | | | - | | | | - | | | | - | | | | $2,701,866 | | | | $3,565,452 | | | | $6,702,389 | |
|
Mr. Coughlin | |
| | | | | | |
| | Voluntary Resignation | | | Termination With Cause | | | Retirement(5) | | | Death & Disability | | | Termination Without Cause | | | Change in Control | |
| | | | | | |
Cash Severance(1) | | | - | | | | - | | | | - | | | | - | | | | $1,351,983 | | | | $2,703,965 | |
| | | | | | |
Equity(2) | | | - | | | | - | | | | - | | | | $3,839,278 | | | | $3,092,646 | | | | $3,804,291 | |
| | | | | | |
Retirement Benefits (3) | | | - | | | | - | | | | $629,000 | | | | - | | | | - | | | | $161,000 | |
| | | | | | |
Other Benefits(4) | | | - | | | | - | | | | - | | | | - | | | | $39,750 | | | | $79,500 | |
| | | | | | |
Total | | | - | | | | - | | | | - | | | | $3,839,278 | | | | $4,484,379 | | | | $6,748,756 | |
|
Ms. Cheverine | |
| | | | | | |
| | Voluntary Resignation | | | Termination With Cause | | | Retirement(5) | | | Death & Disability | | | Termination Without Cause | | | Change in Control | |
| | | | | | |
Cash Severance(1) | | | - | | | | - | | | | - | | | | - | | | | $558,000 | | | | $1,116,000 | |
| | | | | | |
Equity(2) | | | - | | | | - | | | | - | | | | $685,346 | | | | $612,248 | | | | $636,613 | |
| | | | | | |
Retirement Benefits (3) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | |
Other Benefits(4) | | | - | | | | - | | | | - | | | | - | | | | $26,500 | | | | $53,000 | |
| | | | | | |
Total | | | - | | | | - | | | | - | | | | $685,346 | | | | $1,196,748 | | | | $1,805,613 | |
|
Mr. Myers | |
| | | | | | |
| | Voluntary Resignation | | | Termination With Cause | | | Retirement(5) | | | Death & Disability | | | Termination Without Cause | | | Change in Control | |
| | | | | | |
Cash Severance(1) | | | - | | | | - | | | | - | | | | - | | | | $562,650 | | | | $843,975 | |
| | | | | | |
Equity(2) | | | - | | | | - | | | | - | | | | $898,194 | | | | $525,802 | | | | $709,566 | |
| | | | | | |
Retirement Benefits (3) | | | - | | | | - | | | | $143,000 | | | | - | | | | - | | | | $276,000 | |
| | | | | | |
Other Benefits(4) | | | - | | | | - | | | | - | | | | - | | | | $26,500 | | | | $39,750 | |
| | | | | | |
Total | | | - | | | | - | | | | - | | | | $898,194 | | | | $1,114,952 | | | | $1,869,291 | |
Note: Mr. Burkhart is not reflected in the table above because he resigned from the Company on August 11, 2017. In addition to retirement benefits described in page 55, Mr. Burkhart received an award under the SEMPP, further described on page 51, and modification of his deferred share award, further described on page 53.
| (1) | “Cash Severance” amounts are determined by multiples of annual pay provided in the Severance Agreements. |
| (2) | “Equity” includes deferred shares, time-based restricted stock units, performance-based restricted stock units and stock option grants. Equity-based grants immediately vest in the event of a |
| change in control (as defined in the Severance Agreements) followed by certain events previously |
| described or at the time of death or permanent disability. Equity-based grants vest through the period of time represented by the cash severance multiple in the case of an involuntary termination. All full-share awards are valued at the closing price of our common shares on December 31, 2016,29, 2017, which was $39.70.$49.15. All stock options are valued based on the difference between the above closing stock price and the exercise price (or zero if the difference is negative), times the number of unvested shares that would accelerate, as defined in the Severance Agreements. Beginning with the Long-Term Incentive Plan grant for 2012, we modified our equity grant agreements to require double-trigger vesting for awards in the event of a change in control. |
| (3) | “Retirement Benefits” for eligible NEOs represents the value of additional benefits earned under the qualified and supplemental plans as a result of retirement, termination without cause, or a change in control. |
| (4) | “Other Benefits” consists of continuation of health and welfare benefits through the severance period, with an estimated value of $16,500 per year, plus outplacement services with an estimated value of $10,000 per year. Additionally, the Company entered into death benefit agreements with the NEOs who were executive officers in October 2003. The amounts shown under “Death and Disability” represent the value of the death benefit payable under these agreements, which was two times the NEO’s base salary in effect as of December 31, 2003. |
| (5) | All of our NEOs have entered into Severance Agreements that do not contain an excise taxgross-up provision. |
| (6) | Values are shown under the retirement scenario for only those NEOs who were eligible for early retirement withas defined in the Company’s consentapplicable retirement plan as of December 31, 2016,2017, and reflect the incremental present value above what they would receive at normal retirement age. As of December 31, 2017, Mr. Coughlin and Mr. Myers both were eligible for early retirement as defined in the applicable retirement plan. |
In addition to the amounts shown in the table above, the TimkenSteel stock awards and TimkenSteel option awards granted in connection with the Spinoff also vest on substantially the same terms as the comparable Company stock awards and option awards, and would accelerate in connection with the termination events disclosed above.Equity Compensation Plan Information
EQUITY COMPENSATION PLAN INFORMATION
The table below sets forth information as of December 31, 20162017 regarding the Long-Term Incentive Plan. Under the Long-Term Incentive Plan, we have made equity compensation available to Directors, officers and other employees of the Company. The Long-Term Incentive Plan has been approved by our shareholders.
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | 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)) | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | 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)) |
| | (a) (1) | | (b)(2) | | (c)(3) | | (a)(1) | | (b)(2) | | (c)(3) |
Equity compensation plans approved by security holders (4) | | 5,086,185 | | $34.41 | | 6,238,995 | | 4,366,400 | | $36.65 | | 4,920,863 |
Equity compensation plans not approved by security holders | | 0 | | $0.00 | | 0 | | - | | - | | - |
Total: | | 5,086,185 | | $34.41 | | 6,238,995 | | 4,366,400 | | $36.65 | | 4,920,863 |
| (1) | The amount shown in column (a) includes the following: nonqualified stock options – 3,765,507;3,151,121; deferred shares – 139,325;117,849; performance-based restricted stock units – 599,965772,946 (assuming payout levels at target and settlement in shares); and time-based restricted stock units – 581,388324,484 (assuming settlement in shares). |
| (2) | The weighted average exercise price in column (b) includes nonqualified stock options only. |
| (3) | The amount shown in column (c) represents common shares remaining available under the Long-Term Incentive Plan, under which the Compensation Committee is authorized to make awards of common shares, nonqualified stock options, incentive stock options, appreciation rights, restricted shares, deferred shares, performance shares, performance units and restricted stock units. Awards may be credited with dividend equivalents payable in the form of cash or common shares. In addition, under the Long-Term Incentive Plan, nonemployee Directors are eligible for awards of |
| restricted shares, restricted stock units, common shares and option rights. In 2015, the Long-Term Incentive Plan was amended and restated and approved by shareholders at the annual meeting of shareholders to increase the number of common shares that may be issued to an aggregate of 13,000,000. Under the Long-Term Incentive Plan, for any award that is not an option right or a stock appreciation right, 2.12 (awards issued prior to May 7, 2015)/2.6 (awards issued on or after May 7, 2015) common shares are subtracted from the maximum number of common shares available under the plan for every common share issued under the award. For awards of option rights and stock appreciation rights, however, only one common share is subtracted from the maximum number of common shares available under the plan for every common share granted. The amount in the table assumes payout levels at target and settlement in shares for performance-based restricted stock units and settlement in shares for time-based restricted stock units. The entire amount in this column is available for future issuance other than upon the exercise of options, warrants or rights. |
| (4) | The Company also maintains the Director Deferred Compensation Plan and the Deferred Compensation Plan pursuant to which Directors and other employees, respectively, may defer receipt of incentive compensation payable in common shares (other than restricted shares or options) authorized for issuance under the Long-Term Incentive Plan. The table does not include separate information about these plans because they merely provide for the deferral, rather than the issuance, of common shares. |
ITEMPROPOSAL NO. 2
3: RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITOR
The Audit Committee of the Board of Directors has appointed Ernst & Young LLP, an independent registered public accounting firm, to perform the audit of our financial statements and our internal control over financial reporting for the 20172018 fiscal year. Ernst & Young has acted as our independent accounting firm for manyover 100 years. We believe the long tenure of Ernst & Young’s audit relationship with us is beneficial as Ernst & Young has developed significant expertise and experience with our business, accounting policies and practices and our internal control over financial reporting, which we believe allows for a higher quality audit and a competitive fee structure.
The appointment of Ernst & Young as our independent auditor is not required to be submitted to a vote of our shareholders for ratification. However, the Board of Directors believes that obtaining shareholder ratification is a sound governance practice. If our shareholders fail to vote in favor of the appointment of Ernst & Young, the Audit Committee will reconsider whether to retain Ernst & Young and may retain that firm or another firm without resubmitting the matter to our shareholders. Even if the shareholders ratify the appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interest of the Company and its shareholders.
The affirmative vote of a majority of the votes cast on this matter is necessary to ratify the appointment of Ernst & Young. Abstentions will not be counted for determining whether this matter is approved. Because the ratification of the appointment of Ernst & Young is a routine matter, we do not expect any brokernon-votes with respect to this matter.
Representatives of Ernst & Young are expected to be present at the 20172018 Annual Meeting of Shareholders. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITOR FOR THE 20172018 FISCAL YEAR.
AUDITOR
Auditor
Set forth below are the aggregate fees billed by Ernst & Young for professional services rendered to us in 20162017 and 2015:2016:
| | | | 2016 | | | 2015 | | | 2017 | | | | | 2016 | |
| | | |
Audit Fees: | | | | | | | | | | | |
| | | |
Consolidated financial statements | | | $2,925,650 | | | | $2,757,500 | | | $3,443,600 | | | | | | $2,925,650 | |
| | | |
Statutory audits | | | 415,000 | | | | 428,600 | | |
New accounting standards and method changes | | | 751,938 | | | | | | - | |
| | | |
Other out of scope | | | 33,656 | | | | 262,500 | | |
Statutory audits and SEC filings | | | 378,000 | | | | | | 470,156 | |
| | | |
Total Audit Fees | | | $3,374,306 | | | | $3,448,600 | | | | $4,573,538 | | | | | | $3,395,806 | |
| | | |
Audit-Related Fees: | | | | | | | | | | | |
| | | |
Accounting consultations | | | | - | | | | | | $187,025 | |
| Employee benefit plan audits | | | $34,500 | | | | $ 241,400 | | | 12,150 | | | | | | $34,500 | |
| | | |
SEC filings | | | 21,500 | | | | 63,000 | | |
| | | |
Other audit-related consultations | | | 187,025 | | | | 207,500 | | |
| | | |
Total Audit-Related Fees | | | $243,025 | | | | $511,900 | | | | $12,150 | | | | | | $221,525 | |
| | | |
Tax Fees: | | | | | | | | | | | |
| | | |
Tax compliance | | | $108,200 | | | | $ 58,800 | | | $130,744 | | | | | | $108,200 | |
| | | |
Transfer pricing | | | 354,700 | | | | 439,300 | | |
| | | |
Tax advisory | | | - | | | | - | | |
Tax advisory and transfer pricing | | | 577,277 | | | | | | 354,700 | |
| | | |
Total Tax Fees | | | $462,900 | | | | $ 498,100 | | | | $708,021 | | | | | | $462,900 | |
| | | |
All Other Fees: | | | - | | | | - | | | | - | | | | | | - | |
| | | |
Total fees | | | $4,080,231 | | | | $4,458,600 | | | | $5,293,709 | | | | | | $4,080,231 | |
The Audit Committee has adopted policies and procedures requiringpre-approval of all services provided by the independent auditor. Other than servicespre-approved in connection with the annual engagement of the independent auditor, all services to be provided by the independent auditor must be, and have been,pre-approved by the Audit Committee. Requests forpre-approval must contain sufficient detail to ensure the Audit Committee knows precisely what services it is being asked topre-approve so that it can make a well-reasoned assessment of the impact of the service on the auditor’s independence. Additionally, the Audit Committee haspre-approved the provision of a limited number of specific services that do not require further action by the Audit Committee. The Audit Committee has delegated itspre-approval authority to one of its members who must report anypre-approval decisions to the full Audit Committee at its next scheduled meeting.
ITEM NO. 3Audit Committee Report
SHAREHOLDER ADVISORY VOTE ON
NAMED EXECUTIVE OFFICER COMPENSATIONThe Audit Committee has reviewed and discussed with management and our independent auditor the audited financial statements contained in our Annual Report on Form10-K for the fiscal year ended December 31, 2017. The Audit Committee also has discussed with our independent auditor the matters required to be discussed pursuant to Auditing Standard 1301, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board.
We believeThe Audit Committee has received and reviewed the written disclosure and the letter from our independent auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence, has discussed with our independent auditor such independent auditor’s independence, and has considered the compatibility ofnon-audit services with the auditor’s independence.
Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in our compensation programsAnnual Report on Form10-K for our named executive officers:the fiscal year ended December 31, 2017, for filing with the SEC.
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| | align the interests of executive management with those of our shareholders;Frank C. Sullivan (Audit Committee Chairman) |
| ● | | reward executive management for sustained, strong business and financial results; andElizabeth A. Harrell |
| ● | | enable us to attract, retain and motivate the best talent.Christopher L. Mapes |
| | James F. Palmer |
| | Ajita G. Rajendra |
| | Joseph W. Ralston |
OTHER INFORMATION
As required underAdmission to the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A ofAnnual Meeting
For admission to the Securities Exchange Act of 1934, we are asking you to approve, on an advisory(non-binding) basis, the following resolution at our 2017 Annual Meeting, please bring your Notice of Shareholders:
RESOLVED, that the compensation of the named executive officers as disclosed pursuant to the compensation disclosure rules of the SEC, including the CD&A, the compensation tables and any related material disclosed in this Proxy Statement, is hereby APPROVED.
As an advisory vote, this resolution is not binding on us. However, the Compensation Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by our shareholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for our named executive officers. We are currently conducting this advisory vote, commonly known as a“say-on-pay” vote, every year, and, depending on the outcome of the vote on Item No. 4 at the 2017 Annual Meeting of Shareholders expect to hold the next(with yoursay-on-pay11-digit votecontrol number) or a letter from your broker if your shares are held in connection with our 2018 Annual Meeting of Shareholders.
The affirmative vote of a majority of the votes cast on this matter is necessary for approval of this resolution. Abstentions and brokernon-votes will not be counted for determining whether this resolution is approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR APPROVAL, ON AN ADVISORY BASIS, OF OUR NAMED EXECUTIVE OFFICER COMPENSATION.
ITEM NO. 4street name.
SHAREHOLDER ADVISORY VOTE ON THE FREQUENCY OF THE SHAREHOLDERProxy Solicitation
VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
The Securities Exchange Act of 1934 requires companies to hold anon-binding shareholder vote, at least once every six years, to determine whether a shareholder advisory vote on executive compensation should be held every one, two or three years.
After thoughtful consideration of the outcome of our shareholder vote on this topic at the 2011 Annual Meeting of Shareholders and the current preference evident from voting results at other comparable companies, the Board of Directors is recommending that the frequency of the shareholder advisory vote on named executive officer compensation be every year. This recommendation reflects our commitment to strong corporate governance and accountability to our shareholders. An annual advisory vote will foster useful communication with our shareholders by allowing our shareholders to annually express their views on the Company’s executive compensation practices.
As an advisory vote, the outcome of the vote on this resolution is not binding on the Company. However, the Board of Directors values the opinions expressed by our shareholders, and will consider the outcome of the vote when determining the frequency of the shareholder advisory vote on named executive officer compensation.
Shareholders are being asked to vote on the following resolution:
RESOLVED, that the shareholders of Company recommend, on an advisory basis, that the frequency with which the shareholders of the Company shall have an advisory vote on the compensation of the Company’s named executive officers set forth in the Company’s proxy statement is:
• Choice 1 — every year;
• Choice 2 — every two years;
•Choice 3 — every three years; or
•Choice 4 — abstain from voting.
Shareholders are not voting to approve or disapprove the Board of Director’s recommendation. Shareholders may choose among the four choices listed in the resolution set forth above.
THE BOARD OF DIRECTORS RECOMMENDS THAT AN ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION BE HELD EVERY YEAR.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and Directors, and persons who own more than ten percent of our common shares, to file reports of ownership and changes in ownership with the SEC, and to provide us with copies of such reports. We are required to disclose any failure by any of the above-mentioned persons to file timely Section 16 reports.
Based solely upon our review of the copies of such reports furnished to us, or written representations that no forms were required to be filed, we are not aware of any instances of noncompliance, or late compliance, with such filings during the year ended December 31, 2016, by our executive officers, Directors, orten-percent shareholders.
SUBMISSION OF SHAREHOLDER PROPOSALS
We must receive by November 17, 2017 any proposal of our shareholders intended to be presented at the 2018 Annual Meeting of Shareholders and to be included in our proxy materials related to the 2018 Annual Meeting of Shareholders pursuant to Rule14a-8 under the Securities Exchange Act of 1934. Such proposals should be submitted by certified mail, return receipt requested. A shareholder submitting a proposal outside the processes of Rule14a-8 under the Securities Exchange Act of 1934 in connection with the 2018 Annual Meeting of Shareholders(“Non-Rule14a-8 Proposals”) must submit written notice of such proposal in accordance with Article I, Sections 12 and 14 of our Amended Regulations. In general, to be timely, a shareholder’s notice must be delivered to or received by our Secretary at our principal executive offices not less than 90 nor more than 120 days prior to the first anniversary of the date on which the Company held the preceding year’s annual meeting of shareholders. If the date of the 2018 Annual Meeting of Shareholders is scheduled for a date more than 30 days prior to or more than 30 days after the first anniversary of the 2017 Annual Meeting of Shareholders, then a shareholder’s notice must be delivered to our Secretary at ourprincipal executive offices not later than the close of business on the later of the 90th day prior to the 2018 Annual Meeting of Shareholders or the 10th day following the day on which public announcement of the date of the 2018 Annual Meeting of Shareholders is first made. Our proxy related to the 2018 Annual Meeting of Shareholders will give discretionary authority to the proxy holders to vote with respect to allNon-Rule14a-8 Proposals received by us after January 31, 2018. The summaries set forth immediately above are qualified in their entirety by our Amended Regulations and Rule14a-8.
SHAREHOLDER COMMUNICATIONS
Shareholders or interested parties may send communications to the Board of Directors, to any standing committee of the Board, or to any Director, in writing c/o The Timken Company, 4500 Mount Pleasant Street NW, North Canton, Ohio 44720. Shareholders or interested parties may also submit questions, concerns or reports of misconduct through the Timken Helpline at1-800-846-5363 and
may remain anonymous. Communications received may be reviewed by the office of the General Counsel to ensure appropriate and careful review of the matter.
GENERAL
On the record date of February 22, 2017, we had 78,076,234 outstanding common shares, each entitled to one vote upon all matters presented to the meeting. The presence in person or by proxy of not less than 50% of such shares shall constitute a quorum for purposes of the 2017 Annual Meeting of Shareholders.
The enclosed proxy is solicited by the Board of Directors, and the entire cost of solicitation will be paid by the Company. In addition to solicitation by mail, our officers and other employees, without extra remuneration, may solicit the return of proxies by any means of communication. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward soliciting material to the beneficial owners of shares held of record by them and will be reimbursed for their expenses. We have retained Innisfree M&A Incorporated to assist in the solicitation of proxies for a fee not to exceed $17,500 plus reasonableout-of-pocket expenses.
How Proxies will be Voted
On the record date of February 20, 2018, we had 77,982,665 outstanding common shares, each entitled to one vote upon all matters presented to the meeting. The presence in person or by proxy of not less than 50% of such shares shall constitute a quorum for purposes of the 2018 Annual Meeting of Shareholders.
Voting at the Meeting
Shares represented by properly executed proxies will be voted at the meeting in accordance with the shareholders’ instructions. In the absence of specific instructions, the shares will be voted FOR the election of Directors as indicated under ItemProposal No. 1, FOR ItemProposal No. 2, and FOR ItemProposal No. 3, and FOR Choice 1 – every year for Item No. 4, and, as to any other business as may be properly brought before the 20172018 Annual Meeting of Shareholders and any adjournments or postponements thereof, in the discretion of the proxy holders.
You may revoke your proxy at any time before the 20172018 Annual Meeting of Shareholders by a later dated proxy received by us or by giving notice to us either in writing or at the meeting.
Corporate Election Services, Inc. (“CES”) will be responsible for tabulating the results of shareholder voting. CES will submit a total vote only, keeping all individual votes confidential. Representatives of CES will serve as inspectors of election for the 20172018 Annual Meeting of Shareholders. Under Ohio law, and our Amended Articles of Incorporation and Amended Regulations, properly executed proxies marked “abstain” and brokernon-votes will be counted for purposes of determining whether a quorum has been achieved at the 20172018 Annual Meeting of Shareholders.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act requires our executive officers and Directors, and persons who own more than ten percent of our common shares, to file reports of ownership and changes in ownership with the SEC, and to provide us with copies of such reports. We are required to disclose any failure by any of the above-mentioned persons to file timely Section 16 reports.
Based solely upon our review of the copies of such reports furnished to us, or written representations that no forms were required to be filed, we are not aware of any instances of noncompliance, or late compliance, with such filings during the year ended December 31, 2017, by our executive officers, Directors, orten-percent shareholders.
Submission of Shareholder Proposals
We must receive by November 19, 2018 any proposal of our shareholders intended to be presented at the 2019 Annual Meeting of Shareholders and to be included in our proxy materials related to the 2019 Annual Meeting of Shareholders pursuant to Rule14a-8 under the 1934 Act. Such proposals should be submitted by certified mail, return receipt requested. A shareholder submitting a proposal outside the processes of Rule14a-8 under the 1934 Act in connection with the 2019 Annual Meeting of Shareholders(“Non-Rule14a-8 Proposals”) must submit written notice of such proposal in accordance with Article I, Sections 12 and 14 of our Amended Regulations. In general, to be timely, a shareholder’s notice must be delivered to or received by our Secretary at our principal executive offices not less than 90 nor more than 120 days prior to the first anniversary of the date on which the Company held the preceding year’s annual meeting of shareholders. If the date of the 2019 Annual Meeting of Shareholders is scheduled for a date more than 30 days prior to or more than 30 days after the first anniversary of the 2018 Annual Meeting of Shareholders, then a shareholder’s notice must be delivered to our Secretary at ourprincipal executive offices not later than the close of business on the later of the 90th day prior to the 2019 Annual Meeting of Shareholders or the 10th day following the day on which public announcement of the date of the 2019 Annual Meeting of Shareholders is first made. Our proxy related to the 2019 Annual Meeting of Shareholders will give discretionary authority to the proxy holders to vote with respect to allNon-Rule14a-8 Proposals received by us after February 4, 2019. The summaries set forth immediately above are qualified in their entirety by our Amended Regulations and Rule14a-8.
General
The SEC permits companies to send a single set of annual disclosure documents to any household at which two or more shareholders reside, unless contrary instructions have been received, but only if we provide advance notice and follow certain procedures. In such cases, such shareholders continue to receive a separate notice of the meeting and proxy card. This “householding” process reduces the volume of duplicate information and reduces printing and mailing expenses. We have not instituted householding for shareholders of record; however, a number of brokerage firms may have instituted householding for beneficial owners of our common shares held through such brokerage firms. If your family has multiple accounts holding common shares, you already may have received a householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of the annual disclosure documents. The broker will arrange for delivery of a separate copy of this Proxy Statement or our Annual Report on Form10-K for the year ended December 31, 20162017 promptly upon your written or oral request. You may decide at any time to revoke your decision to household and thereby receive multiple copies.
After April 1, 2017,2018, we will furnish to each shareholder, upon written request and without charge, a copy of our Annual Report to Shareholders for the year ended December 31, 2016,2017, including financial statements and schedules thereto, filed with the SEC. Requests should be addressed to William R. Burkhart,Carolyn E. Cheverine, Executive Vice President, General Counsel and Secretary, The Timken Company, 4500 MountMt. Pleasant Street NW, North Canton, Ohio 44720.
APPENDIX A
Reconciliation of Adjusted Earnings Per Share to GAAP Earnings Per Share
The following reconciliation is provided as additional relevant information about the Company’s performance deemed useful to investors. Management of the Company believes that thenon-GAAP measure adjusted diluted earnings per share is an important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting adjusted diluted earnings per share is useful to investors as this measure is representative of the Company’s core operations.
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(Dollars in millions) (Unaudited) | | Twelve Months Ended December 31, | |
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| | 2017 | | | EPS | | | 2016 | | | EPS | |
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Net Income Attributable to The Timken Company | | | $203.4 | | | | $2.58 | | | | $140.8 | | | | $1.78 | |
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Adjustments(1): | | | | | | | | | | | | | | | | |
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Impairment, restructuring and reorganization costs(2) | | | $13.1 | | | | | | | | $28.0 | | | | | |
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Acquisition related charges(3) | | | $9.0 | | | | | | | | $4.2 | | | | | |
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Gain on sale of real estate(4) | | | $(3.6 | ) | | | | | | | — | | | | | |
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Pension related charges(5) | | | $18.1 | | | | | | | | $67.0 | | | | | |
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CDSOA Income(6) | | | — | | | | | | | | $(59.6 | ) | | | | |
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Health care plan modification costs(7) | | | $(0.7 | ) | | | | | | | $2.9 | | | | | |
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Gain on dissolution of subsidiary | | | — | | | | | | | | $(0.5 | ) | | | | |
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Tax Indemnification(8) | | | $(1.0 | ) | | | | | | | — | | | | | |
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Benefit for income taxes(9) | | | $(30.8 | ) | | | | | | | $(13.8 | ) | | | | |
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Total Adjustments | | | $4.1 | | | | — | | | | $28.2 | | | | $0.35 | |
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Net Income Attributable to The Timken Company, after adjustments | | | $207.5 | | | | $2.63 | | | | $169.0 | | | | $2.13 | |
Diluted Shares Outstanding | | | 78,911,149 | | | | | | | | 79,234,324 | | | | | |
| (1) | Adjustments arepre-tax, with net tax provision (benefit) listed separately. |
| (2) | Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: |
| (ii) | the rationalization of certain plants; and |
| (iii) | severance related to cost reduction initiatives. |
The Companyre-assesses its operating footprint and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations.
| (3) | Acquisition related charges in 2017 relate to the Groeneveld Group, Torsion Control Products, Inc., PT Tech, Inc. and EDT Corp. acquisitions, includingone-time transaction costs and inventorystep-up impact. |
| (4) | The gain on the sale of real estate relates to the sale of a manufacturing facility in South Africa and a manufacturing facility in Altavista, Virginia during the second and third quarter of 2017, respectively. These amounts were recorded in other income. |
| (5) | Pension related charges represent actuarial losses that resulted from the remeasurement of pension plan assets and obligations as a result of changes in assumptions. The Company recognizes actuarial (gains) and losses through earnings in connection with the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. Pension related charges in 2016 also included professional fees associated with the implementation of a group annuity contract. |
| (6) | U.S. Continued Dumping and Subsidy Offset Act (“CDSOA”) income represents the amount of funds received by the Company from monies collected by U.S. Customs on entries of merchandise subject to anti-dumping orders that entered the U.S. prior to October 1, 2007. |
| (7) | Health care plan modification costs representone-time charges associated with a redesign in medical insurance options available for active associates. In connection with the redesign, the Company elected to pay certain unused reimbursement account balances to associates impacted by the change in available options. |
| (8) | The tax indemnification in 2017 represents a receivable from TimkenSteel related to the settlement of certain tax liabilities and pursuant to a tax sharing agreement between the Company and TimkenSteel dated June 30, 2014. This amount was recorded in other income. |
| (9) | Benefit for income taxes includes the impact of discrete tax items recorded during the respective periods, including the net benefit of prior year tax matters during 2017, as well as the net tax impact onpre-tax adjustments, to reflect the use of one overall effective tax rate on adjustedpre-tax income in interim periods. |
Forward-Looking Statements
Certain statements in the proxy statement that thisAppendix A is attached to (including statements regarding the company’s estimates and expectations) that are not historical in nature are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements regarding the company’s expectations regarding its organic and inorganic growth initiatives are forward-looking. The company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: the inability to complete the ABC Bearings Ltd. acquisition or unexpected delay in the completion of the acquisition due to either the failure to satisfy any condition to the closing of the transaction, or the occurrence of any event, change or other circumstance that could give rise to the termination of the scheme of merger or implementation agreement; the inability to successfully integrate the newly acquired business into the company’s operations or achieve the expected synergies associated with the acquisition; and adverse changes in the markets served by the newly acquired business. Additional factors are discussed in the company’s filings with the Securities and Exchange Commission, including the company’s Annual Report on Form10-K for the year ended Dec. 31, 2017, quarterly reports on Form10-Q and current reports on Form8-K. Except as required by the federal securities laws, the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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| | | | c/o Corporate Election Services P. O. Box 3200 Pittsburgh, PA 152303230
| | V O T E B Y T E L E P H O N E |
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| | | Have your proxy card available when you call theToll-Free number 1-888-693-8683using a touch-tone phone, and follow the simple instructions to record your vote. |
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| | | | | | V O T E B Y I N T E R N E T |
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| | | | | | Have your proxy card available when you access the websitewww.cesvote.comand follow the simple instructions to record your vote. |
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| | | | | | V O T E B Y M A I L |
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| | | | | | Please mark, sign and date your proxy card and return it in thepostage-paid envelopeprovided or return it to: Corporate Election Services, P.O. Box 3230, Pittsburgh, PA 15230. |
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Vote by Telephone CallToll-Freeusing a Touch-Tone phone: 1-888-693-8683 | | | | Vote by Internet Access the Website and Cast your vote: www.cesvote.com | | | | Vote by Mail Return your proxy card in thePostage-Paid envelope provided |
Vote 24 hours a day, 7 days a week!
If you vote by telephone or Internet, please do notNOT send your proxy by mail.
Proxy must be signed and dated below.
Please fold and detach card at perforation before mailing.
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THETIMKENCOMPANY | | PROXY / VOTING INSTRUCTION CARD |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned appoints John M. Timken, Jr.; Richard G. Kyle; and William R. Burkhart;Carolyn E. Cheverine; and each of them, as true and lawful proxies, with full power of substitution, to vote and act for the undersigned as specified on the reverse hereof at the Annual Meeting of Shareholders of THE TIMKEN COMPANY to be held at 4500 Mount Pleasant Street NW, North Canton, Ohio 44720, on May 9, 2017,8, 2018, at 10:00 a.m., and at any adjournment thereof, as fully as the undersigned could vote and act if personally present on the matters set forth on the reverse hereof, and, in their discretion on such other matters as may properly come before the meeting, and/or if the undersigned is a participant in one or more of the Company’s or its subsidiaries’ associate share ownership plans and has stock of the Company allocated to his or her account(s), the undersigned directs the trustee(s) of such plan(s) likewise to appoint the above-named individuals as proxies to vote and act with respect to all shares of such stock so allocated on the record date for such meeting in the manner specified on the reverse hereof at such meeting or any adjournment thereof, and in their discretion on such other matters as may properly come before the meeting.
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Signature |
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Signature (if jointly held) |
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Please sign exactly as the name appears hereon. Joint owners should each sign. When signing as an attorney, executor, administrator, trust or guardian, please give full title as such. |
PLEASE SIGN AND RETURN AS SOON AS POSSIBLE
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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May 9, 20178, 2018 at 10:00 a.m. The Timken Company 4500 Mount Pleasant Street NW North Canton, OH 44720-5450 Telephone: (234) 262-3000 | | | | Parking: Shareholders attending the meeting may park in the visitor lot in front of the Corporate Office building. Note: If your shares are held in street name, please bring a letter with you from your broker stating as such to the Annual Meeting. |
For directions to the Annual Meeting, you may call234-262-3000.
ELECTRONIC ACCESS TO FUTURE DOCUMENTS NOW AVAILABLE
If you are a registered holder of shares, you have the option to access future shareholder communications (e.g., annual reports, proxy statements, related proxy materials) over the Internet instead of receiving those documents in print. Participation is completely voluntary. If you give your consent, in the future, when our material is available over the Internet you will receive notification that will contain the Internet location where the material is available. Our material will be presented in PDF format. There is no cost to you for this service other than any charges you may incur from your Internet provider, telephone and/or cable company. Once you give your consent, it will remain in effect until you inform us otherwise. You may revoke your consent at any time by notifying the Company in writing writing.
To give your consent, follow the prompts when you vote by telephone or over the Internet or check the appropriate box located at the bottom of the attached proxy card when you vote by mail.
Please fold and detach card at perforation before mailing.
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THETIMKENCOMPANY | | | | PROXY / VOTING INSTRUCTION CARD |
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The shares represented by this proxy will be voted as recommended by the Board of Directors unless otherwise specified. The Board of Directors recommends a vote FOR proposals 1, 2 and 3 and 1 YEAR for proposal 4. 3. |
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1. | Election of Directors to serve for a term of one year: |
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Nominees: | | (01) | | Maria A. Crowe | | (02) | | Richard G. Kyle | | (03) | | John A. Luke, Jr. | | (04) | | Christopher L. Mapes |
| | (05) | | James F. Palmer | | (06) | | Ajita G. Rajendra | | (07) | | Joseph W. Ralston | | (08) | | Frank C. Sullivan |
| | (09) | | John M. Timken, Jr. | | (10) | | Ward J. Timken, Jr. | | (11) | | Jacqueline F. Woods | | | | |
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| | ❑ | | FOR all nominees listed above ❑ WITHHOLD AUTHORITYto vote for all nominees listed above |
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| | To withhold authority to vote for individual Nominee(s), write the name(s) or number(s) on the line below: |
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Nominees: | | (01) | | Maria A. Crowe | | (02) | | Elizabeth A. Harrell | | (03) | | Richard G. Kyle | | (04) | | John A. Luke, Jr. |
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| | (05) | | Christopher L. Mapes | | (06) | | James F. Palmer | | (07) | | Ajita G. Rajendra | | (08) | | Joseph W. Ralston |
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| | (09) | | Frank C. Sullivan | | (10) | | John M. Timken, Jr. | | (11) | | Ward J. Timken, Jr. | | (12) | | Jacqueline F. Woods |
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| | ❑ | | FOR all nominees listed above ❑ WITHHOLD AUTHORITYto vote for all nominees listed above |
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| | To withhold authority to vote for individual Nominee(s), write the name(s) or number(s) on the line below: |
2. | RatificationApproval, on an advisory basis, of the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending December 31, 2017.named executive officer compensation. |
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❑ FOR | | | ❑ | | | AGAINST | | | ❑ | | | ABSTAIN | | | | | | |
3. | Approval, on an advisory basis,Ratification of named executive officer compensation.the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending December 31, 2018. |
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❑ FOR | | | ❑ | | | AGAINST | | | ❑ | | | ABSTAIN | | | | | | |
4. | Recommendation, on an advisory basis, of the frequency of the shareholder advisory vote on named executive officer compensation. |
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❑ 1 YEAR | | ❑ 2 YEARS | | ❑3 YEARS❑ABSTAIN |
❑ | PLEASE CHECK THIS BOX IF YOU CONSENT TO ACCESS FUTURE ANNUAL REPORTS AND PROXY MATERIAL VIA THE INTERNET ONLY. |
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CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE. |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE TIMKEN COMPANY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 9, 20178, 2018
Notice of Annual Meeting of Shareholders
WHEN AND WHERE IS THE SHAREHOLDER MEETING?
The 20172018 Annual Meeting of Shareholders of The Timken Company will be held on Tuesday, May 9, 2017,8, 2018, at 10:00 a.m., at The Timken Company at 4500 Mount Pleasant Street NW, North Canton, Ohio 44720.
For admission to the Annual Meeting, please bring this notice or a letter from your broker if your shares are held in street name. For directions to the Annual Meeting, you may call234-262-3000.
WHAT IS BEING VOTED ON AT THE SHAREHOLDER MEETING?
| ● | | Election of eleventwelve Directors to serve for a term of one year: Maria A. Crowe, Elizabeth A. Harrell, Richard G. Kyle, John A. Luke, Jr., Christopher L. Mapes, James F. Palmer, Ajita G. Rajendra, Joseph W. Ralston, Frank C. Sullivan, John M. Timken, Jr., Ward J. Timken, Jr., and Jacqueline F. Woods. |
| ● | | Approval, on an advisory basis, of our named executive officer compensation. |
| ● | | Ratification of the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending December 31, 2017. |
| ● | | Approval, on an advisory basis, of named executive officer compensation.
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| ● | | Recommendation, on an advisory basis, of the frequency of the shareholder advisory vote on named executive officer compensation.2018.
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WHAT DOES THE BOARD OF DIRECTORS RECOMMEND?
The Board of Directors recommends that shareholders vote FOR all of the nominees, FOR approval, on an advisory basis, of our named executive officer compensation and FOR ratification of the appointment of Ernst & Young LLP as our independent auditor for the year ending December 31, 2017, FOR approval, on an advisory basis, of named executive officer compensation and 1 YEAR for the frequency of theshareholder advisory vote on named executive officer compensation.2018.
HOW CAN I GET A COMPLETE SET OF PROXY MATERIALS?
This is not a proxy card. If you wish to cast your vote on a traditional proxy card, you must request a paper copy of the proxy materials by following the instructions below.
This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.
The following documents can be viewed at: www.ViewMaterial.com/TKR
| ● | | 20172018 Proxy Statement |
If you want to receive a paper ore-mail email copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy as instructed below on or before April 26, 20172018 to facilitate timely delivery.
You may request a paper or email copy of the proxy materials by following the instructions below. You will be asked to provide the control number (located by the arrow in the box below).
| 1. | Call the toll-free telephone number1-800-516-1564 and follow the instructions provided, or |
| 2. | Access the website,www.SendMaterial.com, and follow the instructions provided, or |
| 3. | Send us ane-mail email atpapercopy@SendMaterial.com with your control number in the subject line. Unless you instruct us |
| otherwise, we will reply to your email with a copy of the proxy materials in PDF format for this meeting only. |
| | | | |
| | To vote your shares, you can attend the Annual |
| | Meeting of Shareholders and vote in person or |
| | you can: |
| | 1. | | Go to www.ViewMaterial.com/TKR |
| | 2. | | Click on the icon to vote your shares. |
| | 3. | | Enter the11-digit Control Number (located by the arrow in the box above). |
| | 4. | | Follow the instructions to record your vote. |
| | | | You will be able to vote until 6:00 a.m. on May 9, 2017.8, 2018. |