UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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☒ | Definitive Proxy Statement | |||
☐ | Definitive Additional Materials | |||
☐ | Soliciting Material Pursuant to§240.14a-12 | |||
Fortune Brands Home & Security, Inc. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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520 Lake Cook Road, Deerfield, Illinois 60015
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
March 14, 201822, 2021
Dear Fellow Stockholders:
We are pleased to invite you to the 20182021 Annual Meeting of Stockholders (“Annual Meeting”) of Fortune Brands Home & Security, Inc. on Tuesday, May 1, 20184, 2021 at 8:00 a.m. (CDT). Due to the public health impact of the coronavirus (COVID-19) pandemic, the Annual Meeting will be conducted exclusively online by virtual webcast at the Renaissance Chicago North Shore Hotel, 933 Skokie Boulevard, Northbrook, Illinois.www.virtualshareholdermeeting.com/FBHS2021. The following matters will be considered at the Annual Meeting:
Proposal 1: | Election of the | |
Proposal 2: | Ratification of the appointment by the Company’s Audit Committee of PricewaterhouseCoopers LLP as our independent registered public accounting firm for | |
Proposal 3: | Advisory vote to approve the compensation paid to the Company’s named executive officers (see page | |
such other business as may properly come before the Annual Meeting.
Stockholders of record at the close of business on March 2, 2018,5, 2021, the record date for the Annual Meeting, are entitled to vote.Stockholders who wish to attend theFor information about attending our Annual Meeting in person should review theonline and for voting instructions, beginning on page 1.please see pages 52-56.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE. See pages1-5 for voting instructions.
This Notice of Annual Meeting and Proxy Statement and accompanying proxy are first being distributed on or about March 14, 2018.22, 2021.
Robert K. Biggart |
Senior Vice President, General Counsel and Secretary |
Important Notice Regarding the Availability of Proxy Materials
for the 20182021 Annual Meeting of Stockholders to be Held on Tuesday, May 1, 2018.4, 2021.
This Notice of Annual Meeting and Proxy Statement and the Annual Report on Form10-K for the fiscal year ended December 31, 20172020 (“Form10-K”) are available atwww.proxyvote.comwww.proxyvote.com.
Time and Date | ![]() | Virtual Location | ![]() | Record Date | ||||||||
Tuesday, May 4, 2021 at 8:00 a.m. (CDT) | www.virtualshareholdermeeting.com/FBHS2021 | March 5, 2021 |
* | To participate in the Annual Meeting online, visit the website shown above and enter the 16-digit control number included in your Notice of Internet Availability of Proxy Materials, on your proxy card, or on the instructions that accompanied your proxy materials. See pages 52-56 for additional details on how to attend the meeting. |
Why did I receive these materials?Agenda and Voting Recommendations
These materials were provided to you in connection with the solicitation by the Board of Directors (the “Board”) of Fortune Brands Home & Security, Inc. (“Fortune Brands” or the “Company”) of proxies to be voted at our Annual Meeting and at any adjournment or postponement of the Annual Meeting. The Annual Meeting will take place on May 1, 2018 at 8:00a.m. (CDT) at the Renaissance Chicago North Shore Hotel, 933 Skokie Boulevard, Northbrook, Illinois. This Proxy Summary highlights selected information in this Proxy Statement describes the matters on which you, as a stockholder, are entitled to vote and gives youdoes not contain all of the information that you need to make an informed decision on these matters.
Why did I receive a “Notice of Internet Availability of Proxy Materials” instead of printed proxy materials?
Companies are permitted to provide stockholders with access to proxy materials over the Internet instead of mailing a printed copy. Unless we were instructed otherwise, we mailed a Notice of Internet Availability of Proxy Materials (the “Notice”) to stockholders. The Notice contains instructions onshould consider in deciding how to accessvote. Please read the proxy materials oncomplete Proxy Statement carefully before voting. The following table summarizes the Internet, how to vote and how to request a printed set of proxy materials. This approach reduces the environmental impact and our costs of printing and distributing the proxy materials, while providing a convenient method of accessing the materials and voting.
The Company will make its Annual Report on Form10-K for the last fiscal year, including any financial statements or schedules, available to stockholders without charge, upon written request to the Secretary, Fortune Brands Home & Security, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015. The Company will furnish exhibits to Form10-K to each stockholder requesting them upon payment of a $.10 per page fee to cover the Company’s cost.
Can I get electronic access to the proxy materials if I received printed materials?
Yes. If you received printed proxy materials, you can also access them online atwww.proxyvote.combefore voting your shares. The Company’s proxy materials are also available on our website athttp://ir.fbhs.com/annuals-proxies.cfm. Stockholders are encouraged to elect to receive future proxy materials electronically. If you opt to receive our future proxy materials electronically, you will receive an email next year with instructions containing a link to view those proxy materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect until you terminate it or for as long as the email address provided by you is valid. Stockholders of record who wish to participate can enroll athttp://enroll.icsdelivery.com/fbhs. If your shares are held in an account by a bank, broker or other nominees, you should check with your bank, broker or other nominee regarding the availability of this service.
What is the difference between being a stockholder of record and a beneficial owner?
If your shares are registered directly in your name with EQ Shareholder Services, the Company’s transfer agent, you are the “stockholder of record.” If your shares are held in an account by a bank, broker or other nominee, you hold your shares in “street name” and are a “beneficial owner” of those shares. The majority of stockholders are beneficial owners. For such shares, a bank, broker or other nominee is considered the stockholder of record for purposes of voting at the Annual Meeting. Beneficial owners have the right to direct their bank, broker or other nominee on how to vote the shares held in their account by using the voting instructions provided by the bank, broker or other nominee.
Who is entitled to vote?
Only stockholders who owned the Company’s common stock of record at the close of business on March 2, 2018 (the “Record Date”) are entitled to vote. Each holder of common stock is entitled to one vote per share. There were 148,018,012 shares of common stock outstanding on the Record Date.
FREQUENTLY ASKED QUESTIONS (CONTINUED)
Who can attend the Annual Meeting?
Only stockholders who owned Fortune Brands’ common stock as of the close of business on the Record Date, or their authorized representatives, may attend the Annual Meeting. At the entrance to the meeting, stockholders will be asked to present valid photo identification to determine stock ownership on the Record Date. If you are acting as a proxy, you will need to submit a valid written legal proxy signed by the owner of the common stock.You must bring such evidence with you to be admitted to the Annual Meeting.
Stockholders who own their shares in “street name” will be required to submit proof of ownership at the entrance to the meeting. Either your voting instruction card or brokerage statement reflecting your stock ownership as of the Record Date may be used as proof of ownership.
What mattersitems that will be voted on at the Annual Meeting?
Four matters will be considered at theour Annual Meeting which are:of Stockholders, along with the Board’s voting recommendations.
Proposal
| Description of Proposal | Board Recommendation
| Page
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1 | Election of four Class I Directors Ann F. Hackett, John G. Morikis, Jeffery S. Perry and Ronald V. Waters, III
| FOR each Nominee | 6-11 | |||
2 | Ratify the appointment of the independent auditor Pricewaterhouse Coopers
| FOR | 48 | |||
3
| Advisory vote to approve named executive officer compensation
| FOR
| 49
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See pages 52-56 for instructions on how to vote your shares.
2020 BUSINESS HIGHLIGHTS
INCREASED NET SALESby 6% to $6.1 billion | RETURNED CASH TO SHAREHOLDERS$321 million through dividends and share repurchases | |||||
GREW EARNINGS PER SHARE by 29% from $3.06 to $3.94 and 16% and from $3.60 to $4.19 on a before charges/gains basis | MAINTAINED STRONG BALANCE SHEET $419 million of cash with $865 million total liquidity available between our $1.25 billion revolver and the $400 million one-year revolver secured during the pandemic. |
Impact of COVID-19 on our 2020 Business
In March 2020, the World Health Organization declared a global pandemic related to the novel coronavirus (“COVID-19” or the “pandemic”). Fortune Brands, like many other companies, faced unprecedented operational, financial and safety challenges.
PROXY SUMMARY (CONTINUED) |
In the first half of the year, we saw some reductions in demand, short-term closures of some of our facilities and increased inefficiencies at some of our plants and within parts of our supply chain due to the pandemic. Due to the proactive measures taken by our management teams throughout our organization, Fortune Brands was able to:
prioritize and ensure the safety of our employees;
keep our facilities operating so that we could meet accelerating demand; and
take market share from our competitors and deliver exceptional financial results.
We believe that the pandemic put renewed focus on the home, creating an increased consumer interest in investing in their homes and accelerated trends that we were experiencing prior to the pandemic, such as the shift towards value-priced cabinetry products and a focus on outdoor living. We saw increased volume, improved efficiencies and sales during the second halfof the year.
Due to our safety practices, a stronger than expected home products market and the actions taken by our executive team to permanently reduce expenses and improve productivity across our businesses, we saw a material year-over-year improvement in sales and profits during 2020. We continue to believe that an improved market and actions taken by the Company to reduce costs and drive efficiencies, will enable us to compete effectively throughout the duration and after the COVID-19 pandemic.
BOARD OF DIRECTORS
Board Refreshment
In anticipation of Mr. Klein’s retirement from the Board, Amit Banati and Jeffery Perry were added to our Board in 2020.
Mr. Banati joined as a Class II member of the Board in September 2020. Mr. Banati brings strong financial expertise, along with executive and international leadership experience at Kellogg Company where he currently serves as Chief Financial Officer. Mr. Banati serves on our Audit and Compensation Committees.
Mr. Perry joined as a Class I member of the Board in December 2020. Mr. Perry brings experience as a mergers and acquisitions (M&A), integrations, business transformations and strategic business advisor at Ernst & Young. Mr. Perry serves on our Audit and Nominating, Environmental, Social and Governance Committees.
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Successful Leadership Transition
In January 2020, Nicholas Fink became our new Chief Executive Officer (“CEO”) following Christopher Klein’s decision to retire after 8 years as the Company’s CEO. To ensure a smooth and successful transition, Mr. Klein served as Executive Chairman of the Board of Directors through the end of 2020. On December 31, 2020, Mr. Klein resigned as Executive Chairman and as a member of the Board and the Board appointed Susan S. Kilsby as the non-executive Chairman of the Board.
PROXY SUMMARY (CONTINUED) |
Mr. Fink’s appointment was the result of our Board’s active engagement in a thoughtful and comprehensive multi-year succession planning process to identify and develop talented internal candidates. Our Board determined that Mr. Fink’s leadership with industry-leading consumer brands and his proven track record of driving continued growth and efficiency in our businesses, as well as his deep understanding of our markets, uniquely positioned him to lead our Company’s next phase of growth.
CORPORATE GOVERNANCE HIGHLIGHTS
Our Board is committed to maintaining a strong corporate governance program designed to promote the long-term interests of our shareholders and strengthen Board and management accountability. As a company, we’re committed to core values that include integrity and accountability. These practices are reflected in our corporate governance policies, which are described in more detail on pages 12-19 of the Proxy Statement and highlighted below:
Independent Board (90%), except our CEO | Independent Chair of the Board | |
Majority vote in uncontested director elections, with a resignation policy | Annual Board and Committee evaluations | |
Regular executive sessions of non-management directors | Succession planning at all levels, including Board, CEO and executive team | |
Active engagement and oversight by Board of Company strategies and risks | Board oversight of ESG programs and annual publication of ESG report | |
Robust stock ownership guidelines for Directors and prohibition on hedging and pledging of Company stock | Proxy Access bylaw allows for 3% holders to nominate the greater of 2 directors or 20% of the board |
In early 2021, the Board adopted a by-law amendment providing stockholders with proxy access. This amendment allows stockholders who own 3% of our shares for 3 years to nominate the greater of 2 directors or 20% of board after meeting certain requirements. This action demonstrates the Board’s commitment to maintaining a strong corporate governance program.
PROXY SUMMARY (CONTINUED) |
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) HIGHLIGHTS
During a challenging year, we continued to focus on elevating our ESG programs and initiatives with oversight by the Board’s Nominating, Environmental, Social and Governance Committee (the “NESG” or “NESG Committee”):
Social and environmental issues are important to our stockholders and the success of our business. Below are some examples of how we prioritize these issues:
We produce environmentally friendly faucets, showerheads and whole home water solutions that help conserve water, fiberglass doors that save energy and decking products that are made from nearly all recycled materials.
Employee safety is a critical element to our growth strategy and integral to Company culture. This has been demonstrated in total recordable incident rates over the last five years, as shown below:
We enhanced our already-strong safety protocols to provide safer workplaces for our employees and continued to operate our businesses so we could meet consumer demand during the pandemic, by taking the following actions:
Established physical distancing procedures for our production employees by adding extra shifts, staggering start and finish times, increasing space or adding barriers between stations;
Implemented temperature screening and health checks and mandated face coverings at our manufacturing facilities; and
PROXY SUMMARY (CONTINUED) |
Adjusted attendance policies to encourage those who are sick to stay home and required associates to work remotely when possible.
In 2020, we took multiple actions to support a culture where diversity, equity and inclusion (“DEI”) continues to be a priority for the Company:
Headlined the importance of DEI efforts at our annual leadership meeting in early 2020;
Nicholas Fink joined the CEO Action for Diversity & Inclusion, a business leader pledge aimed at advancing diversity and inclusion in the workplace;
Implemented an unconscious bias learning program for our most senior leaders to help break bias in the decision making process;
Built an internal DEI team and initiated employee resource groups; and
Increased the diversity of the experience of the Board, adding two new Directors who are persons of color and appointing a woman as the Chair of the Board.
For more information about our ESG efforts, please view our latest ESG Report available at www.fbhs.com/global-citizenship/esg.
COMPENSATION HIGHLIGHTS
PAYFOR PERFORMANCE Our executive compensation program is designed to reward NEOs for the achievement of both strategic and operational goals that lead to the creation of long-term stockholder value. The vast majority of each NEO’s annual target compensation is at-risk because compensation paid to our NEOs is dependent upon Company performance and/or stock price. In 2020:
86.3% the CEO’s total target compensation was pay-at-risk;
76.4% of the other NEOs (on average and excluding Mr. Klein) total target compensation was pay-at-risk; and
50% of the annual equity awards granted to NEOs in 2020 were performance share awards based on three-year performance targets.
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Long-term focus and stockholder alignment through equity compensation |
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Robust stock ownership guidelines | Prohibition on hedging and pledging of | |
Executive compensation subject to a clawback policy | No single trigger change in control severance arrangements | |
Limited perquisites | No excise tax gross ups |
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How do I vote?
If you received a Notice in the mail, you can either vote by (i) Internet (www.proxyvote.com) or (ii) in person at the Annual Meeting. Voting instructions are provided on the Notice. You may also request to receive printed proxy materials in the mail.
Stockholders who received printed proxy materials in the mail can vote by (i) filling out the proxy card and returning it in the postage paid return envelope, (ii) telephone(800-690-6903), (iii) Internet (www.proxyvote.com), or (iv) in person at the Annual Meeting. Voting instructions are provided on the proxy card.
Stockholders who received proxy materials electronically can vote by (i) Internet (www.proxyvote.com), (ii) telephone(800-690-6903), or (iii) in person at the Annual Meeting.
If you are not the stockholder of record, but are a beneficial owner of our shares, you must vote by giving instructions to your bank, broker or other nominee. You should follow the voting instructions on the form that you receive from your bank, broker or other nominee, which will include details on available voting methods.To be able to vote in person at the Annual Meeting, you must obtain a legal proxy from your bank, broker or other nominee in advance and present it to the Inspector of Election with your completed ballot at the Annual Meeting.
How will my proxy be voted?
Your proxy card, when properly signed and returned to us, or processed by telephone or via the Internet, and not revoked, will be voted in accordance with your instructions. If any matter is properly presented other than the four proposals described above, the persons named in the enclosed proxy card or, if applicable, their substitutes, will have discretion to vote your shares in their best judgment.
FREQUENTLY ASKED QUESTIONS (CONTINUED)
What if I don’t mark the boxes on my proxy or voting instruction card?
Unless you give other instructions on your proxy card or your voting instruction card, or unless you give other instructions when you cast your vote by telephone or the Internet, the persons named in the enclosed proxy card will vote your shares in accordance with the recommendations of the Board, which areFORthe election of each director named in Proposal 1,FOR Proposals 2 and 3 andONE YEAR for the frequency of the advisory vote to approve the compensation of the Company’s named executive officers (Proposal 4).
If you hold shares beneficially and you have not provided voting instructions, your bank, broker or other nominee is only permitted to use its discretion and vote your shares on certain routine matters (Proposal 2). If you have not provided voting instructions to your bank, broker or other nominee onnon-routine matters (Proposals 1, 3 and 4), your bank, broker or other nominee is not permitted to use discretion and vote your shares.Therefore, we urge you to give voting instructions to your bank, broker or other nominee on all four proposals.Shares that are not permitted to be voted by your bank, broker or other nominee with respect to any matter are called “brokernon-votes.” Brokernon-votes are not considered votes for or against a proposal and will have no direct impact on the voting results, but will be counted for the purposes of establishing a quorum at the Annual Meeting.
How many votes are needed to approve a proposal?
The nominees for director, innon-contested elections, must receive a majority of the votes cast at the Annual Meeting, in person or by proxy, to be elected. A proxy card marked to abstain on the election of a director and any brokernon-votes will not be counted as a vote cast with respect to that director.
Under the Company’s majority vote Bylaw provision relating to the election of directors, if the number of votes cast “for” a director nominee does not exceed the number of votes cast “against” the director nominee, then the director must tender his or her resignation from the Board promptly after the certification of the stockholder vote. The Board (excluding the nominee in question) will decide within 90 days of that certification, through a process managed by the Nominating and Corporate Governance Committee, whether to accept the resignation. The Board’s explanation of its decision will be promptly disclosed in a filing with the Securities and Exchange Commission (“SEC”).
The affirmative vote of shares representing a majority in voting power of the common stock, present in person or represented by proxy at the Annual Meeting, and entitled to vote is necessary for the approval of Proposals 2 and 3.
For Proposal 4, stockholders may vote in favor of holding the vote to approve the compensation paid to the Company’s named executive officers every one year, every two years or every three years and they may also choose to abstain. The option of every one year, every two years or every three years that receives the highest number of votes cast by stockholders will be considered by the Board as the stockholders’ recommendation as to the frequency of future advisory votes on executive compensation.
Proxy cards marked to abstain on Proposals 2 and 3 will have the effect of a negative vote. Proxy cards marked to abstain on Proposal 4 will have no effect on the outcome. Brokernon-votes are not applicable to Proposal 2 because your bank, broker or other nominee will be permitted to use discretion to vote your shares on this proposal. Brokernon-votes will have no impact on Proposals 1, 3 and 4.
How can I revoke my proxy or change my vote?
You may revoke your proxy by giving written notice to the Secretary of the Company or by delivering a later dated proxy at any time before it is actually voted. If you voted on the Internet or by telephone, you may change your vote by voting again. Your last vote is the vote that will be counted. Attendance at the Annual Meeting does not revoke your proxy unless you vote at the Annual Meeting.
FREQUENTLY ASKED QUESTIONS (CONTINUED)
Will my vote be public?
As a matter of policy, proxies, ballots and tabulations that identify individual stockholders are not publicly disclosed, but are available to the independent Inspector of Election and certain employees of the Company.
What constitutes a quorum?
The presence at the Annual Meeting, in person or by proxy, of the holders of a majority in voting power of the issued and outstanding shares of common stock entitled to vote will constitute a quorum. Proxies received but marked as abstentions or without any voting instructions will be included in the calculation of the number of shares considered to be present at the Annual Meeting.
Our Board is soliciting this proxy. The Company will bear the expense of soliciting proxies for this Annual Meeting, including mailing costs. To ensure that there is sufficient representation at the Annual Meeting, our employees may solicit proxies by telephone, facsimile or in person.
What if I am a participant in the Fortune Brands Home & Security Retirement Savings Plan or the Fortune Brands Home & Security Hourly Employee Retirement Savings Plan?
Participants who invest in the Fortune Brands Stock Fund through the Fortune Brands Home & Security Retirement Savings Plan and the Fortune Brands Home & Security Hourly Employee Retirement Savings Plan (collectively, the “Savings Plans”) were mailed a Notice. The Trustee of the Savings Plans, as record holder of the Fortune Brands common stock held in the Savings Plans, will vote whole shares attributable to your interest in the Fortune Brands Stock Fund in accordance with your directions. Follow the voting instructions provided in the Notice to allow the Trustee to vote the whole shares attributable to your interest in accordance with your instructions. If the Trustee does not receive timely voting instructions with respect to the voting of your shares held in the Fortune Brands Stock Fund, the Trustee will vote such shares in the same manner and in the same proportion as the shares for which the Trustee did receive voting instructions.
How can I eliminate multiple mailings to the same address?
If you and other residents at your mailing address are registered stockholders and you receive more than one copy of the Notice, but you wish to eliminate the duplicate mailings, you must submit a written request to the Company’s transfer agent, EQ Shareowner Services. To request the elimination of duplicate copies, please write to EQ Shareowner Services, 1110 Centre Pointe Curve, Suite 101, Mendota Heights, Minnesota 55120.
If you and other residents at your mailing address own shares in street name, your broker, bank or other nominee may have sent you a notice that your household will receive only one Notice or one set of proxy materials for each company in which you hold stock through that broker, bank or other nominee. This practice, known as “householding,” is designed to reduce our printing and postage costs. If you did not respond, the bank, broker or other nominee will assume that you have consented, and will send only one copy of the Notice to your address. You may revoke your consent to householding at any time by sending your name, the name of your brokerage firm, and your account number to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. The revocation of your consent to householding will be effective 30 days following its receipt. In any event, if you did not receive an individual copy of the Notice or proxy materials, or if you wish to receive individual copies of such documents for future meetings, we will send an individual copy to you if you call Shareholder Services at (847)484-4538, or write to the Secretary of Fortune Brands Home & Security, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015.
FREQUENTLY ASKED QUESTIONS (CONTINUED)
How can I submit a stockholder proposal or nomination next year?
Our Bylaws provide that in order for a stockholder to (i) nominate a candidate for election to our Board at the 2019 Annual Meeting of Stockholders, or (ii) propose business for consideration at the 2019 Annual Meeting of Stockholders, written notice containing the information required by the Bylaws must be delivered to the Secretary of the Company no less than 90 days nor more than 120 days before the anniversary of the prior year’s Annual Meeting, that is, after January 1, 2019 but no later than January 31, 2019 for the 2019 Annual Meeting.
Under SEC rules, if a stockholder wishes to submit a proposal for possible inclusion in the Company’s 2019 proxy statement pursuant to Rule14a-8 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), we must receive it on or before November 14, 2018.
The person presiding at the Annual Meeting is authorized to determine if a proposed matter is properly brought before the Annual Meeting or if a nomination is properly made.
Copies of our Restated Certificate of Incorporation and Bylaws are available upon written request to the Secretary, Fortune Brands Home & Security, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015.
Summary of Qualification of Directors
The Board believes that all directors must possess a considerable amount of education and business management experience. The Board also believes that it is necessary for each of the Company’s directors to possess certain general qualities, while there are other skills and experiences that should be represented on the Board as a whole, but not necessarily by each individual director.
General qualities we look for in all directors:
Extensive executive leadership experience
Excellent business judgment
High level of integrity and ethics
Original thinking
Strong commitment to the Company’s goal of maximizing stockholder value
Specific experiences, qualifications, experience, skills and backgroundsexpertise to be represented onby members of the Board as a whole:Board:
Consumer products expertise
Financial and/or accounting expertise
Consumer products expertise
Knowledge of international markets
ChiefPublic company experience as a chief executive, officer/chief operating officer/or chief financial officer experience
ExtensivePublic company board experience
Diversity of skill, background and viewpoint
The process used by the Nominating and Corporate Governance Committee in recommending qualified director candidates is described below under Corporate Governance – Director Nomination Process (see page 6 of this Proxy Statement).
Election of Class I Directors
The Board currently consists of eightten members and is divided into three classes, each having three year terms that expire in successive years. Mr. Banati was appointed by the Board to serve as a Class II Director effective in September 2020 and Mr. Perry was elected by the Board to serve as a Class I Director effective in December 2020. The term of theeach director currently serving in Class I, directorsMs. Ann Fritz Hackett and Messrs. John G. Morikis, Jeffery S. Perry and Ronald V. Waters, III, expires at the 20182021 Annual Meeting of Stockholders. The Board has nominated Ms. Ann F. Hackett Mr. John G.and Messrs. Morikis, Perry and Mr. Ronald V. Waters III, each of whom is currently serving as a Class I director, forre-election for a new term of three years expiring at the 20212024 Annual Meeting of Stockholders and until their successors are duly elected and qualified. Shares cannot be voted for more than the number of nominees proposed forre-election.
Each of the nominees has consented to be named as a nominee and to serve as a director, if elected. If any of them should become unavailable to serve as a director (which is not now expected), the Board may designate a substitute nominee. In that case, the persons named in the enclosed proxy card will vote for the substitute nominee designated by the Board. Shares cannot be voted for more than the number of nominees proposed for re-election.
The names of the nominees and the current Class II and Class III directors, along with their present positions, their principal occupations and employment during the last five years, any directorships held with other public companies during the past five years, their ages and the year first elected as a director of the Company, are set forth below. IndividualEach director’s individual qualifications and experiences of our directors that contribute to the Board’s effectiveness as a whole are also described in the following paragraphs.
PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED)
PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED) |
2021 NOMINEES FOR ELECTION – CLASS I DIRECTORS |
Name | Present positions and offices with the Company, principal | Age | Year first elected director | |||||||
NOMINEES FOR DIRECTOR – CLASS I DIRECTORS – TERM EXPIRING 2021 |
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Ann F. Hackett | Partner andco-founder of Personal Pathways, LLC, a company providingweb-based enterprise collaboration platforms, since 2015. Prior to that, President of Horizon Consulting Group, LLC, a strategic and human resource consulting firm founded by Ms. Hackett in 1996. Currently also a director of Capital One Financial Corporation. Formerly a director of Beam Inc. | 64 | 2011 | |||||||
Ms. Hackett has extensive experience in leading companies that provide strategic, organizational and human resource consulting services to boards of directors and senior management teams. She has experience leading change initiatives, risk management, talent management and succession planning and in creating performance- based compensation programs, as well as significant international experience and technology experience. Ms. Hackett also has extensive board experience and currently serves as the lead independent director of Capital One Financial Corporation. |
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John G. Morikis | President and Chief Executive Officer since January 2016 and Chairman since January 2017 of The Sherwin-Williams Company, a manufacturer of paint and coatings products. President and Chief Operating Officer from 2006 to January 2016. Currently a director of The Sherwin-Williams Company. | 54 | 2011 | |||||||
Mr. Morikis’ experience as a Chief Executive Officer and as a Chief Operating Officer of The Sherwin-Williams Company, and his more than 30 years of experience with a consumer home products company, brings to our Board the perspective of a leader who faces similar external economic issues that face our Company. | ||||||||||
Ronald V. Waters, III | Retired since May 2010; President and Chief Executive Officer of LoJack Corporation, a provider of tracking and recovery systems, from January 2009 to May 2010. Currently also a director of HNI Corporation and Paylocity Holding Corporation. Formerly a director of Chiquita Brands International, Inc. | 65 | 2011 | |||||||
Mr. Waters has considerable executive leadership and financial management experience. He served as Chief Executive Officer and Chief Operating Officer at LoJack Corporation, a premier technology company, and as Chief Operating Officer and Chief Financial Officer at Wm. Wrigley Jr. Company, a leading confectionary manufacturing company. Mr. Waters also has extensive board experience. |
The Board of Directors recommends that you vote FOR the election of each nominee named above.
Ann Fritz Hackett Director since: 2011 Independent Director Age: 67 Committees: Compensation (Chair); NESG; Executive Biography: Retired since January 2020. Strategy Consulting Partner and Co-founder of Personal Pathways, LLC, a company providing web-based enterprise collaboration platforms, from 2015 through January 2020. Prior to her role at Personal Pathways, she was President of Horizon Consulting Group, LLC, a strategic and human resource consulting firm founded by Ms. Hackett in 1996. Current Public Company Boards: Currently also a director of Capital One Financial Corporation. Skills & Qualifications: Ms. Hackett has extensive experience in leading companies that provide strategic, organizational and human resource consulting services to boards of directors and senior management teams. She has experience leading change initiatives, risk management, talent management and succession planning and in creating performance based compensation programs, as well as significant international experience and technology experience. Ms. Hackett also has extensive board experience and currently serves as the lead independent director of Capital One Financial Corporation. John G. Morikis Director since: 2011 Independent Director Age: 57 Committees: Audit; Compensation Biography: Chairman since January 2017 and Chief Executive Officer since January 2016 of The Sherwin-Williams Company, a manufacturer of paint and coatings products. President and Chief Operating Officer of The Sherwin-Williams Company prior thereto. Current Public Company Boards: Currently also a director of The Sherwin-Williams Company. Skills & Qualifications: Mr. Morikis’ experience as a Chief Executive Officer and a Chief Operating Officer of The Sherwin-Williams Company, and his more than 30 years of experience with a consumer home products company, brings to our Board the perspective of a leader who faces similar external economic issues that face our Company.PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED)
PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED) |
Name | Present positions and offices with the Company, principal | Age | Year first elected director | |||||||
CLASS II DIRECTORS – TERM EXPIRING 2019 |
| |||||||||
Susan S. Kilsby | Retired since May 2014; Senior Advisor at Credit Suisse AG, an investment banking firm, from 2009 to May 2014; Managing Director of European Mergers and Acquisitions of Credit Suisse prior thereto. Currently also a director of Shire Plc, BBA Aviation PLC and Goldman Sachs International.Formerly a director of Keurig Green Mountain, Inc., and Coca-Cola HBC AG. | 59 | 2015 | |||||||
Ms. Kilsby has a distinguished global career in investment banking and brings extensive mergers and acquisitions and international business experience to the Board. In addition to her experience at Credit Suisse, she held a variety of senior positions with The First Boston Corporation, Bankers Trust and Barclays de Zoete Wedd. Ms. Kilsby also has extensive board experience and currently serves as thenon-executive Chair of Shire Plc. | ||||||||||
Christopher J. Klein | Chief Executive Officer of the Company since January 2010. President and Chief Operating Officer prior thereto. Currently also a director of Thor Industries, Inc. | 54 | 2010 | |||||||
Mr. Klein’s leadership as Chief Executive Officer of the Company and his significant corporate strategy, business development and operational experience provide him with intimate knowledge of our operations and the challenges faced by the Company. Mr. Klein led the Company through thespin-off from Fortune Brands, Inc. in 2011. Prior to the Company’sspin-off, he held several leadership positions at Fortune Brands, Inc., helping to reshape the business through acquisitions and divestitures. Prior to joining Fortune Brands, Mr. Klein held key strategy and operating positions at Bank One Corporation and also served as a partner at McKinsey & Company, a global management consulting firm. |
Jeffery S. Perry Director since: 2020 Independent Director Age: 55 Committees: Audit; NESG Biography: Founder and CEO of Lead Mandates LLC, a business and leadership advisory firm; Retired since October 2020 from Ernst & Young LLP, a leading global professional services firm where he served as EY Global Client Service Partner for major consumer product accounts from April 2014 to October 2020 and as EY Americas Operational Transaction Service Practice Leader prior thereto. Skills & Qualifications: Mr. Perry has extensive experience as a strategic, operational and financial advisor helping boards of directors and management teams. He held several senior positions with Ernst & Young and A.T. Kearney Inc. Mr. Perry brings to our Board relevant experience and perspectives in mergers, acquisitions, integrations, divestitures, business transformations and consumer products. Name Present positions and offices with the Company, principal A.D. David Mackay Retired since January 2011; President and Chief Executive Officer of Kellogg Company, a packaged foods manufacturer, prior thereto. Currently also a director of The Clorox Company. Formerly a director of Keurig Green Mountain, Inc., McGrath Limited, Woolworths Limited and Beam Inc. David M. Thomas Norman H. Wesley Retired since October 2008; Chairman of the Board and Chief Executive Officer of Fortune Brands, Inc. prior thereto. Currently also a director of Acuity Brands, Inc. and Acushnet Holdings Corp. Formerly a director of Keurig Green Mountain, Inc. and ACCO Brands Corporation. Ronald V. Waters, III Director since: 2011 Independent Director Age: 69 Committees: Audit (Chair); NESG; Executive Biography: Retired since May 2010; President and Chief Executive Officer of LoJack Corporation, a provider of tracking and recovery systems, until his retirement. Current Public Company Boards: Currently also a director of HNI Corporation and Paylocity Holding Corporation. Skills & Qualifications: Mr. Waters has considerable executive leadership and financial management experience. He served as Chief Executive Officer and Chief Operating Officer at LoJack Corporation, a premier technology company, and as Chief Operating Officer and Chief Financial Officer at Wm. Wrigley Jr. Company, a leading confectionary manufacturing company. Mr. Waters also has extensive board experience. The Board of Directors recommends that you vote FOR the election of each nominee named above.PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED)
occupations and other directorships
during the past five years Age Year
first
elected
director 62 2011 Mr. Mackay held various key executive positions with Kellogg Company including Chief Executive Officer and Chief Operating Officer, bringing to our Board the perspective of a leader who faced a similar set of external economic, social and governance issues to those that face our Company. Mr. Mackay also has significant international business experience, as well as extensive board experience. Retired since March 2006; Chairman of the Board and Chief Executive Officer of IMS Health Incorporated, a provider of information services to the pharmaceutical and healthcare industries, prior thereto. Currently also a director of The Interpublic Group of Companies, Inc. and a member of the Fidelity Investments Board of Trustees. 68 2011 Mr. Thomas’ experience as a Chief Executive Officer of IMS Health Incorporated and his management experience at premier global technology companies, including as Senior Vice President and Group Executive of IBM, helps the Board address the challenges the Company faces due to rapid changes in IT capabilities and communications and global distribution strategies. Mr. Thomas also has extensive board experience. 68 2011 Mr. Wesley’s experience as Chief Executive Officer of a consumer products conglomerate gives him unique insights into the Company’s challenges, opportunities and operations. Mr. Wesley also has extensive board experience.
PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED) |
CLASS II DIRECTORS – TERM EXPIRING 2022 |
Amit Banati |
Director since: 2020 Independent Director Age: 52 Committees: Audit; Compensation Biography: Senior Vice President and Chief Financial Officer of Kellogg Company from July 2019 to Present; President – Asia Pacific, Middle East, Africa of Kellogg Company from March 2012 to July 2019). | ||
Skills & Qualifications: Mr. Banati has extensive executive leadership, operations and financial management experience in leading consumer products companies, both domestically and internationally. He brings to our Board the perspective of a leader with extensive international experience in the consumer products industry. As the Chief Financial Officer of Kellogg Company, he also brings significant financial and accounting expertise to our Board. |
Irial Finan |
Director since: 2019 Independent Director Age: 63 Committees: Compensation; NESG Biography: Retired since April 2018; Consultant to the CEO of The Coca-Cola Company from January 2018 to March 2018; Executive Vice President of The Coca-Cola Company and President of Coca-Cola Bottling Investments Group from August 2004 to December 2017. Current Public Company Boards: Currently also a director of Coca-Cola European Partners plc, Coca-Cola Bottlers Japan Holdings, Inc. and Smurfit Kappa Group plc. Former Public Company Boards: Formerly a director of Coca-Cola HBC AG and Coca-Cola FEMSA | ||
Skills & Qualifications: Mr. Finan’s experience as an Executive Vice President of The Coca-Cola Company and President of its worldwide bottling operations, as well of his years of international consumer products experience, brings to our Board the perspective of a leader with extensive international experience in the consumer products industry. Mr. Finan has extensive board experience, including serving as Chair of Smurfit Kappa Group plc. |
PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED) |
Susan S. Kilsby |
Director since: 2015 Independent Director Non-Executive Chair Age: 62 Committees: Compensation; NESG; Executive (Chair) Biography: Retired since May 2014; Senior Advisor at Credit Suisse AG, an investment banking firm, from 2009 to May 2014; Managing Director of European Mergers and Acquisitions of Credit Suisse prior thereto. Current Public Company Boards: Currently also a director of BHP Group plc, BHP Limited, Diageo plc and Unilever plc. Former Public Company Boards: Formerly a director of Shire plc (Chair from 2014-2019), Goldman Sachs International, Keurig Green Mountain, Inc., Coca-Cola HBC AG and BBA Aviation plc. | ||
Skills & Qualifications: Ms. Kilsby has a distinguished global career in investment banking and brings extensive mergers and acquisitions and international business experience to the Board. In addition to her experience at Credit Suisse, she held a variety of senior positions with The First Boston Corporation, Bankers Trust and Barclays de Zoete Wedd. Ms. Kilsby also has extensive board experience, including serving as Chair of Shire plc for 5 years. |
CLASS III DIRECTORS – TERM EXPIRING 2023 |
Nicholas I. Fink |
Director since: 2020 Age: 46 Committees: Executive Biography: Chief Executive Officer of Fortune Brands Home & Security, Inc. since January 2020; President & Chief Operating Officer of Fortune Brands from March 2019 to January 2020; President of Fortune Brands Global Plumbing Group from August 2016 to March 2019 and Senior Vice President, Global Growth & Corporate Development of Fortune Brands from June 2015 to August 2016. Senior Vice President and President of Asia-Pacific/South America of Beam Suntory, Inc., a global spirits company, prior thereto. Current Public Company Boards: Currently also a director of Constellation Brands, Inc. | ||
Skills & Qualifications: Mr. Fink’s leadership as Chief Executive Officer of the Company and his significant international and consumer brand and business operating experience, as well as his mergers and acquisitions and strategy expertise provide him with intimate knowledge of our operations, the opportunities for growth and the challenges faced by the Company. Prior to joining the Company, Mr. Fink held key leadership positions at Beam Suntory, Inc., including President of Beam’s Asia Pacific/South America business unit. |
PROPOSAL 1 – ELECTIONOF DIRECTORS (CONTINUED) |
A.D. David Mackay |
Director since: 2011 Independent Director Age: 65 Committees: Audit; Compensation Biography: Retired since January 2011; President and Chief Executive Officer of Kellogg Company, a packaged foods manufacturer, prior thereto. Current Public Company Boards: Currently also a director of The Clorox Company. Former Public Company Boards: Formerly a director of Keurig Green Mountain, Inc. and McGrath Limited. | ||
Skills & Qualifications: Mr. Mackay held various key executive positions with Kellogg Company including Chief Executive Officer and Chief Operating Officer, bringing to our Board the perspective of a leader who faced a similar set of external economic, social and governance issues to those that face our Company. Mr. Mackay also has significant international business experience, as well as extensive board experience. |
David M. Thomas |
Director since: 2011 Independent Director Age: 71 Committees: Audit; NESG (Chair); Executive Biography: Retired since March 2006; Chairman of the Board and Chief Executive Officer of IMS Health Incorporated, a provider of information services to the pharmaceutical and healthcare industries, prior thereto. Currently also a director of The Interpublic Group of Companies, Inc. and Fidelity Investments Board of Trustees. | ||
Skills & Qualifications: Mr. Thomas’ experience as a Chief Executive Officer of IMS Health Incorporated and his management experience at premier global technology companies, including as Senior Vice President and Group Executive of IBM, helps the Board address the challenges the Company faces due to rapid changes in IT capabilities and communications and global distribution strategies. Mr. Thomas also has extensive board experience, including serving as the Company’s Independent Chairman from 2011 through 2019 and as our Lead Independent Director during 2020. |
Fortune Brands is committed to maintaining strong corporate governance practices that are good for our stockholders and our business. We are dedicated to maintaining these practices and upholding high standards of conduct.
Corporate Governance Principles
The Board adopted a set of Corporate Governance Principles which describe our corporate governance practices and address corporate governance issues such as Board composition and responsibilities, Board meeting procedures, the establishment of Board committees, management succession planning process and review of risks. The Corporate Governance Principles are available athttp:https://ir.fbhs.com/corporate-governance.cfmgoverning-high-standards.
The Company’s Corporate Governance Principles provide that a majority of the members of the Board shall be independent directors. New York Stock Exchange requirements, as well as the Company’s committee charters, require that each member of the Audit, Compensation and Nominating and Corporate Governance Committees be independent. The Board applies the definition of independence found in the New York Stock Exchange Listed Company Manual in determining which directors are independent. When determining each director’s independence, the Board also considered charitable contributions made by the Company to organizations with which each director is affiliated.
The Company’s Corporate Governance Principles provide that a majority of the members of the Board shall be independent directors. New York Stock Exchange requirements, as well as the Company’s committee charters, require that each member of the Audit, Compensation and NESG Committees be independent. The Board applies | ||
the definition of independence found in the New York Stock Exchange Listed Company Manual in determining which directors are independent. When determining each director’s independence, the Board also considered charitable contributions made by the Company to organizations with which each director is affiliated. |
Applying that definition, Messrs. Banati, Finan, Mackay, Morikis, Perry, Thomas, Wesley and Waters and Mses.
Hackett and Kilsby were affirmatively determined by the Board to be independent. Due to Mr. Klein’sFink’s employment with the Company, he is not considered independent. In addition, Christopher Klein, who served as Executive Chairman of the Board during 2020, was not considered independent due to his employment with the Company.
None of thenon-employee directors has any material relationship with the Company other than being a director and stockholder. Also, none of thenon-employee directors have participated in any transaction or arrangement that interferes with such director’s independence.
Policies with Respect to Transactions with Related Persons
The Board has adopted a Code of Business Conduct &and Ethics which sets forth various policies and procedures intended to promote the ethical behavior of all of the Company’s employees, officers and directors (the “Code of Conduct”). The Code of Conduct describes the Company’s policy on conflicts of interest. The Board has established a Compliance Committee (comprised of management) which is responsible for administering and monitoring compliance with the Code of Conduct. The Compliance Committee periodically reports on the Company’s compliance efforts to the Audit Committee and to the Board.
The Board has also established a Conflicts of Interest Committee (comprised of management) which is responsible for administering, interpreting and applying the Company’s Conflicts of Interest Policy, which describes the types of relationships that may constitute a conflict of interest with the Company. Under the Conflicts of Interest Policy, directors and executive officers are responsible for reporting any potential related person transaction (as defined in Item 404 of RegulationS-K) to the Conflicts of Interest Committee in advance of commencing a potential transaction. The Conflicts of Interest Committee will present to the Audit Committee any potential related party transaction. The Audit Committee will evaluate the transaction, determine whether the interest of the related person is material and approve or ratify, as the case may be, the transaction. In addition, the Company’s executive officers and directors annually complete a questionnaire on which they are required to disclose any related person transactions and potential conflicts of interest. The General Counsel reviews the responses to the questionnaires and, if a related person transaction is reported by a director or executive officer, submits the transaction for review by the Audit Committee. The Conflicts of Interest Committee also reviews potential conflicts of interest and reports findings involving any director of the Company to the Nominating and Corporate Governance Committee (the “Nominating Committee”). NESG Committee.
CORPORATE GOVERNANCE (CONTINUED) |
The NominatingNESG Committee will review any potential conflict of interest involving a member of the Board to determine whether such potential conflict would affect that director’s independence.
CORPORATE GOVERNANCE (CONTINUED)
Certain Relationships and Related Transactions
Since January 1, 2017,2020, the Company did not participate in any transactions in which any of its directors, executive officers, any immediate family member of a director or executive officer or any beneficial owner of more than 5% of the Company’s common stock had a direct or indirect material interest.
Anti-Hedging and Anti-Pledging Policy
The Company has a policy prohibiting directors and executives from hedging or pledging Company stock, including Company stock held indirectly, and from engaging in any derivative transactions designed to offset the decrease or increase in the market value of the Company’s stock.
The NominatingNESG Committee is responsible for, among other things, screening potential director candidates, recommending qualified candidates to the Board for nomination and assessing director independence.
When identifying director candidates, the NominatingNESG Committee determines whether there are any evolving needs that require an expert in a particular field or other specific skills or experiences. When evaluating director candidates, the NominatingNESG Committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, conflicts of interest, integrity, ethics and commitment to the goal of maximizing stockholder value. The NominatingNESG Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. The Nominating Committee does not have a formal policy with respect to diversity; however, the Board and the Nominating Committee believe that it is essential that the Board members represent diverse viewpoints. In considering candidates for the Board, the NominatingNESG Committee considers the entirety of each candidate’s credentials in the context of these standards.
Following a multi-year comprehensive succession planning process, Mr. Fink was appointed as the Chief Executive Officer, as well as a Class III member of the Board of Directors effective in January 2020. During 2020, the NESG Committee retained a search firm to assist the Board in finding qualified candidates for new members of the Board. Mr. Banati was a candidate identified through this search and the Board appointed him as a Class II member of the Board of Directors effective September 2020. Mr. Perry was recommended as a potential candidate to join the Board by Mr. Fink. Mr. Perry was appointed as a Class I member of the Board of Directors in December 2020.
With respect to the nomination of continuing directors forre-election, the individual’s contributions to the Board are also considered. For the purpose of this Annual Meeting, the NominatingNESG Committee recommended the nomination of Ms. Hackett and Messrs. Morikis, Perry and Waters as Class I directors.
In connection with future director elections, or at any time there is a vacancy on the Board, the NominatingNESG Committee may retain a third-party search firm to assist in locating qualified candidates that meet the needs of the Board at that time.
It is the NominatingNESG Committee’s policy to consider director candidates recommended by stockholders, if such recommendations are properly submitted to the Company. Stockholders that wish to recommend an individual as a director candidate for consideration by the NominatingNESG Committee can do so by writing to the Secretary of Fortune Brands Home & Security, Inc. at 520 Lake Cook Road, Deerfield, Illinois 60015. Recommendations must include the proposed nominee’s name, biographical data and qualifications, as well as other information that would be required if the stockholder were actually nominating the recommended candidate pursuant to the procedures for such nominations provided in our Bylaws. The NominatingNESG Committee will consider the candidate and the candidate’s qualifications in the same manner in which it evaluates nominees identified by the NominatingNESG Committee. The NominatingNESG Committee may contact the
CORPORATE GOVERNANCE (CONTINUED) |
stockholder making the nomination to discuss the qualifications of the candidate and the stockholder’s reasons for making the nomination. Members of the NominatingNESG Committee may then interview the candidate if the committee deems the candidate to be appropriate. The NominatingNESG Committee may use the services of a third-party search firm to provide additional information about the candidate prior to making a recommendation to the Board.
The nomination process is designed to ensure that the NominatingNESG Committee fulfills its responsibility to recommend candidates that are properly qualified to serve the Company for the benefit of all of its stockholders, consistent with the standards established under the Company’s Corporate Governance Principles.
The Board and management encourage communication from the Company’s stockholders. Stockholders who wish to communicate with the Company’s management should direct their communication to the Chief Executive Officer or the Secretary of Fortune Brands Home & Security, Inc. at 520 Lake Cook Road, Deerfield,
CORPORATE GOVERNANCE (CONTINUED)
Illinois 60015. Stockholders, or other interested parties, who wish to communicate with thenon-management directors or any individual director should direct their communication c/o the Secretary at the address above. The Secretary will forward communications intended for the Board to the Chairman of the Board, or, if intended for an individual director, to that director. If multiple communications are received on a similar topic, the Secretary may, in his or her discretion, forward only representative correspondence. Any communications that are abusive, in bad taste or present safety or security concerns may be handled differently.
To support an effective succession and transition of the Chief Executive Officer role to Mr. Thomas servesFink during 2020, the Board determined that the appropriate Board leadership structure was for Mr. Klein, former Chief Executive Officer, to serve as Executive Chairman. We believe that this structure was appropriate for the Company’snon-executive, independent Chairman. TheCompany to provide interim support to Mr. Fink during this time of transition.
Beginning in 2021, the Board determined that having an independent director serve as Chairman of the Board is in the best interests of our stockholders at this time. Following Mr. Klein’s retirement as Executive Chairman and as a member of the Board, Susan Kilsby was appointed to serve as the Company’s independent, non-executive Chair. This leadership structure aids the Board’s oversight of management and allows our Chief Executive Officer to focus primarily on his management responsibilities. Thenon-executive ChairmanChair has the responsibility of presiding at all meetings of the Board, consulting with the Chief Executive Officer on Board meeting agendas, acting as a liaison between management and thenon-management directors, including maintaining frequent contact with the Chief Executive Officer and advising him or her on the efficiency of the Board meetings, facilitating teamwork and communication between thenon-management directors and management, as well as additional responsibilities that are more fully described in the Company’s Corporate Governance Principles. In addition, the Company’snon-executive ChairmanChair facilitates the Board’s annual performance assessment of the Chief Executive Officer.
The Board does not believe that a single leadership structure is right at all times, so the Board periodically reviews its leadership structure to determine, based on the circumstances at the time, whether other leadership structures might be appropriate for the Company. The Board has been and remains committed to maintaining strong corporate governance and appropriate independent oversight of management. Given that each of the members of the Board, other than Mr. Klein, is independent we believe that the leadership structure currently utilized by the Board provides effective independent Board leadership and oversight.
Pursuant to the Company’s Corporate Governance Principles,non-management directors of the Board are required to meet on a regularly scheduled basis without the presence of management. Themanagement and are led by the non-executiveNon-Executive Chairman ofor Lead Independent Director. During 2020, the Board leadsLead Director led these sessions. In addition, Board Committees also meet regularly in executive session without the presence of management.
CORPORATE GOVERNANCE (CONTINUED) |
The Board of Directors met six times in 2017. Each director attended more than 75% of the total meetings of the Board and committees of the Board of which the director was a member during 2017. Pursuant to the Company’s Corporate Governance Principles, all directors are encouraged and expected to attend the Annual Meeting. All of the directors attended the Company’s 2017 Annual Meeting of Stockholders.
The responsibility for theday-to-day management of risks lies with the Company’s management team; however, the Board has an active role, as a whole and also at the committee level, in overseeing the strategy and process for managing the Company’s risks. The Board regularly reviews information regarding the Company’s business strategy, leadership development, resource allocation, succession planning, credit, liquidity and operations, as well as the risks associated with each. The Company’s overall risk management program consists of periodic management discussions analyzing and mitigating risks, an annual review of risks associated with each of the Company’s operating businesses and an annual review of risks related to the Company’s compensation programs and practices.
CORPORATE GOVERNANCE (CONTINUED)
Annually, management identifies both external risks (i.e., economic) and internal risks (i.e., strategic, operational, financial and compliance), assesses the impact of these risks and determines how to mitigate such risks. The Audit Committee manages the Company’s risk management program and reviews the results of the annual assessment. Management also provides the Audit Committee with quarterly updates on the Company’s risks, which includes an update on cybersecurity related risks. In addition, the Audit Committee oversees management of the Company’s financial risks. In particular, the Company has a comprehensive enterprise-wide cybersecurity program aligned to NIST Cybersecurity Framework (CSF) industry standard and maintains security risk insurance coverage to defray the costs of potential information security breaches. The Company conducts automated online training twice a year for its employees and mock phishing campaigns on a regular basis throughout the year. The Company’s cybersecurity team provides regular updates to our senior executives and at least twice a year to the Audit Committee on the status of the Company’s security posture and our efforts to identify and mitigate cybersecurity risks.
The Company’s Compensation Committee is responsible for overseeing the management of risks relating to the compensation paid to the Company’s executives and the Company’s executive compensation plans. Annually, the Compensation Committee’s independent compensation consultant conducts an assessment of the risks associated with the Company’s executive compensation policies and practices. The compensation consultant conducts a more extensive review of all of the Company’s broad-based compensation incentive arrangements every few years. In 2020, the compensation consultant conducted the broader review of all compensation arrangements. For more information about that assessment see “Compensation Risks” below.
The NominatingNESG Committee manages risks associated with the independence of the Board, potential conflicts of interest of Board members, and the Company’s corporate governance structure, as well as management of risks associated withstructure. In addition, the environment,NESG Committee oversees the Company’s ESG programs and initiatives, which include the Company’s environmental, health and safety, diversity and inclusion, philanthropy, global citizenship and sustainability.other social and governance programs and policies.
While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about all of the risks described above. The Board’s assignment of responsibility for the oversight of specific risks to its committees enables the entire Board, under the leadership of thenon-executive Chairman Chair and the Chief Executive Officer, to better monitor the risks of the Company and more effectively develop strategic direction, taking into account the magnitude of the various risks facing the Company.
The Compensation Committee’s compensation consultant conducts an annual assessment of the risks associated with the compensation policies and practices used to compensate the Company’s executives and reports on the assessment to the Compensation Committee. In 2017,2020, the Compensation Committee, with assistance from its independentCompany’s compensation consultant reviewedanalyzed the elements of executive compensation to determine whether any portion of executive compensation encouraged excessive risk taking and whether incentive designs include appropriate risk-mitigation provisions. After reviewing the compensation consultant’s analysis, the Compensation Committee concluded that they do not. In general,none of the Company’s executive compensation arrangements encourage excessive risk taking and are consistent with the structure and
CORPORATE GOVERNANCE (CONTINUED) |
design of other companies of similar size and industry sector, andsector. The Company utilizes the following risk-mitigating design features have been incorporated into the Company’s programs:features:
The Company uses multiple and diverse performance metrics in incentive plans;
The upside on payout potential is capped for both short-term and long-term incentives;
The Company utilizes multiple long-term incentive vehicles, with PSAsperformance share awards (“PSAs”) that have overlapping three-year performance cycles;
The majority of an individual’s total compensation mix is not derived from a single component of compensation; and
The Company maintains stock ownership guidelines, a policy prohibiting hedging and pledging of Company stock and a formal clawback policy.
As described in our Compensation Discussion and Analysis, compensation decisions are made using a combination of objective and subjective considerations designed to mitigate excessive risk taking by executives.
Each director attended more than 75% of the total meetings of the Board and committees of the Board of which the director was a member during 2020. The Board and its committees held the following number of meetings during 2020:
Pursuant to the Company’s Corporate Governance Principles, all directors are encouraged to attend the Annual Meeting of Shareholders. Due to local restrictions imposed due to the spread of COVID-19, our 2020 Annual Shareholder Meeting was held virtually, which all of the directors attended.
The Board established an Audit Committee, a Compensation Committee, an Executive Committee and a Nominating and Corporate GovernanceNESG Committee. A list of current Committee memberships may be found on the Company’s website athttp:https://ir.fbhs.com/committees.cfmcommittees-and-charters. The Committee memberships as of the date of this Proxy Statement are set forth below:
Name | Audit | Compensation | Executive | |||||||||||||||||||
Amit Banati | X | X | ||||||||||||||||||||
Irial Finan | X | X | ||||||||||||||||||||
Nicholas I. Fink | X | |||||||||||||||||||||
Ann F. Hackett | C | X | X | |||||||||||||||||||
Susan S. Kilsby | X | C | X | |||||||||||||||||||
| ||||||||||||||||||||||
A. D. David Mackay | X | X | ||||||||||||||||||||
John G. Morikis | X | X | ||||||||||||||||||||
Jeffery S. Perry | X | X | ||||||||||||||||||||
David M. Thomas | X | X | C | |||||||||||||||||||
Ronald V. Waters, III | C | X | X | |||||||||||||||||||
|
An “X” indicates membership on the committee.
A “C” indicates that the director serves as the chair of the committee.
CORPORATE GOVERNANCE (CONTINUED) |
The Audit Committee’s primary function is to assist the Board in overseeing the (i) integrity of the Company’s financial statements, the financial reporting process and the Company’s system of internal controls; (ii) Company’s compliance with legal and regulatory requirements; (iii) independence and qualifications of the Company’s external auditors; (iv) performance of the Company’s external and internal auditors; and (v) the Company’s enterprise risk management program.program, which includes oversight of cybersecurity related risks.
Each member of the Audit Committee (Messrs. Banati, Mackay, Morikis, Perry, Thomas Waters and Wesley)Waters), is financially literate. Each ofIn addition, Messrs. Banati, Mackay, Perry, Thomas and Waters and Wesley haseach have accounting or financial management expertise and is an audit committee financial expert as defined in Item 407(d)(5)(ii) and (iii) of RegulationS-K under the Exchange Act. As required by its charter, each Audit Committee member has also been determined by our Board to be independent as such term is defined in the Exchange Act and the New York Stock Exchange Listed Company Manual. The Audit Committee met ten times in 2017.
The Compensation Committee’s primary function is to assist the Board in attracting and retaining high quality leadership by (i) developing and critically reviewing the Company’s executive compensation program design and pay philosophy; and (ii) setting the compensation of the Company’s executive officers, which includes the presidents of the Company’s principal operating companies,business segments, in a manner that is consistent with competitive practices and Company, operating companybusiness segment and individual performance.
As required by its charter, each member of the Compensation Committee (Messrs. Banati, Finan, Mackay Morikis and WesleyMorikis and Mses. Hackett and Kilsby) has been determined by our Board to be independent as such term is defined in the Exchange Act and the New York Stock Exchange Listed Company Manual. The Committee has created a Subcommittee comprised of Mses. Hackett and Kilsby and Messrs. Mackay and Morikis that is responsible for approving all performance standards and payments for any pay program intended to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code (the “Code”). The Compensation Committee met five times in 2017.
CORPORATE GOVERNANCE (CONTINUED)
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee has (i) served as one of the Company’s officers or employees, or (ii) had a relationship requiring disclosure under Item 404 of RegulationS-K.
Compensation Committee Procedures
The Compensation Committee directs management to prepare financial data to be used by the Compensation Committee in determining executive compensation. In addition, members of the Company’s human resources department assist in the preparation of executive compensation tally sheets and historical information describing compensation paid to executives, program design and plan provisions and the Compensation Committee’s independent consultant provides market data for use in determining executive compensation. The Compensation Committee is presented with recommendations from management and from the Committee’s independent compensation consultant as to the level and type of compensation to provideand related program designs provided to the Company’s executive officers. Members of the Company’s legal department provide the Compensation Committee with general advice on laws applicable to executive compensation and the directors’ fiduciary duties in setting compensation.
The Chief Executive Officer attends meetings of the Compensation Committee, except for portions of meetings where his performance or compensation is being discussed. The Chief Executive Officer’s feedback abouton each officer’s performance is essential in the Compensation Committee’s determination of the officer’s salary, target annual incentive and long-term equity compensation determinations. See pages19-32 22-35 of this Proxy Statement for more information about how the Compensation Committee determined the executive officers’ compensation in 2017.2020.
CORPORATE GOVERNANCE (CONTINUED) |
Compensation Committee Consultant
The Compensation Committee engages an outside compensation consultant. Meridian Compensation Partners LLC (“Meridian”) and Willis Towers Watson (“WTW”) each served as the Compensation Committee consultant for a portion of 2020. Meridian served as the Compensation Committee’s consultant since the Company was retainedformed in 2011 through February 2020. After thoughtful consideration and interviews with Meridian and other compensation consulting firms, the Compensation Committee decided to change its consultant. In March 2020 the Compensation Committee engaged WTW as its compensation consultant. At the time that the Committee engaged WTW, it determined that other services provided to the Company did not create a conflict of interest and that WTW is independent. In 2020, WTW received fees of approximately $336,027for executive compensation related services provided to the Compensation Committee. WTW also provided certain human capital, benefits and corporate risk and brokering services to the Company for which WTW received approximately $705,030. The Compensation Committee did not review or approve these additional services provided by WTW to the Company because they are of the type directly secured by management in the ordinary course of business.
Both Meridian and reportsWTW reported directly to the Compensation Committee. In 2017, MeridianCommittee and provided the following services and information to the Compensation Committee:
Made recommendations as to best practices for structuring executive pay arrangements and executive compensation (including the amount and form of compensation) consistent with the Company’s business needs, pay philosophy, market trends and latest legal, regulatory and governance considerations;
Performed an assessment of the Company’s compensation peers;
Provided market data (including compiling compensation data and related performance data) as background for decisions regarding the compensation of the Chief Executive Officer and other executive officers;
Performed an assessment of risks associated with the Company’s executive compensation structure and design; and
Attended Compensation Committee meetings (including executive sessions without the presence of management) and summarized alternatives for compensation arrangements that may have been considered in formulating final recommendations, as well as the consultant’s rationale for supporting or opposing management’s proposals.
The Compensation Committee has authorized Meridian to interact with management in connection with advising the Compensation Committee. Meridian is included in discussions with management on matters being brought to the Compensation Committee for consideration. Meridian is prohibited from performing any services for management outside of services needed in connection with advising the Compensation and Nominating Committees. The Compensation Committee has assessed Meridian’s independence and concluded that Meridian’s work for the Compensation Committee does not raise any conflict of interest.
CORPORATE GOVERNANCE (CONTINUED)
The Executive Committee did not meet in 2017. The Executive Committee has all the authority of the full Board, except for specific powers that are required by law to be exercised by the full Board. The Executive Committee may not amend the Company’s charter, adopt an agreement of merger, recommend actions for stockholder approval, amend or repeal the Bylaws, elect or appoint any director or remove an officer or director, amend or repeal any resolutions of the Board, fix the Board’s compensation, and unless expressly authorized by the Board, declare a dividend, authorize the issuance of stock or adopt a certificate of merger.
Nominating, Environmental, Social and Governance Committee
In February 2020 the Nominating & Corporate Governance Committee
refreshed its charter to clarify the committee’s oversight role in the Company’s ESG initiatives and changed its name to the Nominating, Environmental, Social and Governance Committee (the “NESG Committee”). The NominatingNESG Committee’s primary functions are to (i) provide recommendations to the Board with respect to the organization and function of the Board and its committees; (ii) recruit, identify and recommend potential director candidates and nominees; (iii) review the qualifications and independence of directors and provide recommendations to the Board regarding composition of the committees; (iv) develop and recommend changes to the Company’s corporate governance
CORPORATE GOVERNANCE (CONTINUED) |
framework including the Company’s corporate governance principles; (v) oversee the process of the evaluation of the Board and management; and (vi) review and advise management on matters relating tooversee the Company’s responsibilities to its employeesenvironmental, social and the community.governance programs, policies and related risks. The NominatingNESG Committee also makes recommendations to the Board regarding the level and composition of compensation fornon-employee directors and grants annual equity awards to non-employee directors.
As required by its charter, each member of the NominatingNESG Committee (Messrs. Finan, Perry, Thomas and Waters and Mses. Hackett and Kilsby) has been determined by our Board to be independent as such term is defined in the Exchange Act and the New York Stock Exchange Listed Company Manual. The Nominating Committee met four times in 2017.
Other Corporate Governance Resources
The Company’s Corporate Governance Principles, the Company’s Code of Business Conduct and Ethics and the Company’s Code of Ethics for Senior Financial Officers are available on the Company’s website athttp://ir.fbhs.com/corporate-governance.cfm. The charters of each committee are also available on the Company’s website athttp://ir.fbhs.com/committees.cfm.
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Fortune Brands is committed to attracting and retaining qualified and experienced directors thatto contribute to the Board’s effectiveness and the Company’s goal of maximizing stockholder value. To accomplish this, the Company maintains anon-employee director compensation program that consists of cash feesretainers and Company stock. During 2017, the Board did not make any changes to the structure of or the amounts provided under thenon-employee director compensation program. Below is a description of the 2020 non-employee director compensation program.
In 2017,During 2020, the annual cash feeretainer for services as anon-employee director of the Company was $90,000. The members of the Audit Committee (Messrs. Banati, Mackay, Morikis, Thomas Waters and Wesley)Waters) and the Compensation Committee (Mses. Hackett and Kilsby and Messrs. Banati, Finan, Mackay Morikis and Wesley)Morikis) received an additional annual cash fee of $7,500 for their service on each of these committees. In addition, the chairperson of each of the Audit, Compensation and NominatingNESG Committees received an additional annual cash fee of $15,000 for such service (Mr. Waters, Ms. Hackett and Mr. Thomas, respectively). Mr. Thomas received an additional annual cash feeretainer of $200,000$50,000 for his service asnon-executive Chairman Lead Independent Director of the Board.Board during 2020. Directors may elect to receive payment of their cash feesretainers in Company common stock rather than cash.
Beginning in 2021 and after analyzing director compensation and receiving input from WTW, the Board approved an annual retainer for the non-executive Chair of $200,000, the addition of an annual cash fee of $7,500 for members of the Board serving on the NESG Committee and an increase in the annual cash retainer to $100,000.
In May 2017,April 2020, eachnon-employee director received an annual stock grant that was based on a set dollar value of $135,000. The number of shares granted was determined by dividing the dollar value of the annual stock grant ($135,000) by the closing price of the Company’s common stock on the grant date ($63.32)46.82), rounded to the nearest share. Accordingly, 2,1322,883 shares of Company common stock were granted to each of thenon-employee directors. The Board approved an increase in the dollar value of the 2021 annual stock grant to $145,000. Directors may elect to defer receipt of their annual stock awards until the January following the year in which the individual ceases serving as a director of the Company.
Director Stock Ownership Guidelines
To further align the Board’s interests with those of our stockholders, the Board maintains Stock Ownership Guidelines fornon-employee directors. The guidelines encouragenon-employee directors to own Company common stock with a fair market value equal to five times theirthe annual cash fee ($450,000500,000 based on the 2021 annual fee currently set at $90,000)of $100,000). The guidelines allow directors five years from the date of the director’s election to the Board to meet the guidelines. All of our directors currently meet the multiple or fall within the five year time period allowed to meet the multiple under the Stock Ownership Guidelines. For information about the beneficial ownership of the Company’s securities held by directors and executive officers, see “Certain Information Regarding Security Holdings” on pages48-49. 50-51.
Anti-Hedging and Anti-Pledging
The Company has a policy prohibiting directors (as well as senior management) from hedging the risk of owning Company common stock and from pledging or otherwise encumbering shares of Company common stock as collateral for indebtedness in any manner including, but not limited to, holding shares in a margin account.
DIRECTOR COMPENSATION (CONTINUED)
DIRECTOR COMPENSATION (CONTINUED) |
* Although Mr.Messrs. Fink and Klein currently servesserved as a membermembers of the Board he doesduring 2020, they did not receive any additional compensation for such service. Mr. Banati joined the Board in September 2020 and Mr. Perry joined the Board in December 2020. Mr. Klein retired from the Board effective December 31, 2020.
(1) | Messrs. Banati and Perry received a |
(2) | The amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”). The grant date fair value was |
(3) | Included in this column are premiums paid for group life insurance coverage and the Company’s match on gifts paid by the director to charitable organizations, both of which are generally available to Company employees, and costs associated with the Company’s executive health |
This Compensation Discussion and Analysis (“CD&A”) describes the Company’sFortune Brands’ executive compensation program and explains how the Compensation Committee made compensation decisions for the following Named Executive Officers (the “NEOs”) in 2017:2020:
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Nicholas I. Fink | Christopher J. Klein | Patrick D. Hallinan | R. David Banyard, Jr. | Cheri M. Phyfer | Brett E. Finley | |||||
Executive Chairman & Former Chief Executive Officer | Senior Vice President & Chief Financial Officer | President Cabinets |
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Global Plumbing Group | ||||||||||
President | ||||||||||
Outdoors & Security |
* | Mr. |
This CD&A is divided into the following main sections:
an Executive Summary;
the Results of the 2017Say-on-Pay Vote;
a discussion of the Compensation Committee’s Philosophy and Process for Awarding NEO Compensation; and
a description of the Types and Amounts of NEO Compensation Awarded in 2017.
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2017 Business & Financial Highlights1Leadership Succession Planning
In 2017, we drove profitableEvery year the Board reviews executive succession, including the succession of the CEO. The Compensation Committee and the Board have spent a significant amount of time working on a CEO succession plan over the past several years. With Mr. Klein’s decision to retire as Chief Executive Officer in January 2020, the Board chose Mr. Fink to succeed him. At the same time, the Board evaluated the Company’s leadership structure and decided that Mr. Klein would be appointed Executive Chairman of the Company and Mr. Thomas would transition from non-executive Chairman to Lead Director. On December 31, 2020, Mr. Klein retired as Executive Chairman and as a member of the Board and the Board appointed Susan S. Kilsby as the new non-executive Chair of the Board.
Business and Financial Highlights
As the new CEO at the beginning of 2020, Mr. Fink introduced several strategic initiatives to continue driving growth and delivered increasesprofitability for the Company. Despite the pandemic, the Company was able to execute on multiple key financialstrategies, while at the same time managing the impact of COVID-19 and efficiency measures.keeping our employees safe. The measures marked with an * below were linkedagility demonstrated by the management team in light of the pandemic allowed the Company to 2017 executive compensation.
Net Sales increased 6%deliver above market performance for shareholders while funding incremental investments to $5.3 billion
Operating Income (OI*) increased 10%set the Company up for future success. We believe that the actions taken by the leadership team in 2020 have positioned the Company to $725 million
Earnings per share (EPS*) increased 12%continue to $3.08
Returngrow and create long-term value for our stockholders. See our Proxy Summary on Invested Capital (ROIC*) increased 4% to 13.9%
Operating Margin (OM*) increased 50 basis points to 13.7%
Net Income (NI) increased 10% to $479 million
GPGpage 1 and our COVID-19 Safety disclosures in our Annual Report on Form 10-K for more information about those actions. The Company continued to drive growth through acquisitions, expandingsuccessfully operate its portfolio of brands
Completedbusinesses during the purchase of Shaws of England, a UK premium sink company, and Victoria + Albert, a UK premium free-standing bath tub company.pandemic, took significant actions to keep our employees safe,
1 | All |
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED) |
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
permanently reduced expenses, improved efficiency and grew sales and profits in 2020. The chart below shows how Fortune Brands grew total shareholder return (TSR)following graphics highlight our 2020 growth and reflects the Company’s long-term stock price performance vs. publicly-traded companieson key Company metrics used in the Company’s 2017 Peer Group2 (see page 24 for more information) since the beginning of 2012. TSR has consistently exceeded the Company’s Peer Group and S&P 500 index performanceour incentive program over the long-term.last five (5) years:
(TSR %)
The following charts show how the Company has delivered substantial growth in Net Sales, OI, EPS, ROIC, OM and NI since 2012. The compensation earned by the NEOs in 2017 reflected the Company’s strong financial performance in 2017 and continued execution against many of the metrics that the Compensation Committee believes are tied to increased shareholder value.
OI, EPS and EBITDA are shown above are on a before charges/gains basis. On a GAAP basis, the Company’s 2019 OI was $698.5 and 2020 OI was $801.4 resulting in a 15% increase; 2019 EPS was $3.06 and 2020 EPS was $3.94, resulting in a 29% increase; and 2019 Income from |
COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
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COMPENSATION DISCUSSIONAND ANALYSIS (CONTINUED)
20172020 Compensation Highlights3
We use ourThe Company’s compensation program to attract, motivate and retain the executives who lead our Company. The Compensation Committee has established programs and practices that are designed to pay for performance and to align management’s interests with those of the Company’s stockholders. We believestockholders while attracting, motivating and retaining superior talent to lead our Company. The Compensation Committee believes that our compensation program helps drive Companyincentivizes high performance by providing a significant amount of compensation in the form ofas equity, by utilizing both short-term and long-term incentives that are tied to Company performance and by making efforts to balancebalancing fixed (base salary) and variable (annual cash incentive and equity) compensation. TheOur incentive compensation programs are designed to align the pay of our executives with the value the executives deliver to our shareholders. Although COVID-19 presented a significant challenge to our business, the Compensation Committee continuesdid not make any adjustments to believe that linking compensation to certainthe performance metrics associated with our executive incentive plans (annual cash incentive or performance share awards) to account for the impact of COVID, relying solely on the metrics established prior to the Pandemic.
2020 was an extraordinary year for the Company given the CEO transition, acceleration of strategic priorities and COVID-19 pandemic. As shown in the charts above, our financial performance was excellent with Net Sales increasing 6% and Operating Income (before charges/gains) increasing 12%. These financial results were reflected in increased profitsa significant increase in our stock price compared to our peers and stronger returns, which supports improving stockholder returns.the S&P 500. The 2017 executive compensation programCompany’s one-year total shareholder return (including dividend reinvestment) was guided by33% as compared to the following principles:
Equity-based compensation aligns executives’ interests with stockholders, drives performanceS&P 500 at 18% and facilitates retention of superior talent.
In 2017, the annual equity grants represented 68% of Mr. Klein’s annual total target compensation and 55% (on average)our Peer Group at 21%. To reward our NEOs for this success in light of the other NEOs’ annual total target compensation.
In 2017, annualchallenges the Company faced as a result of COVID-19, the Compensation Committee granted 2020 outperformance equity awards, for NEOs consisted50% of performance share awards (PSAs),the award value in the form of restricted stock units (RSUs) and stock options:
PSAs will settle in Company stock only if the minimum performance goals set for the cumulative three-year performance period are exceeded;
RSUs will settle in Company stock, in three equal annual installments, assuming the NEO remains employed through each vesting date; and
Stock options allow the NEO to purchase Company stock at the market price set on the grant date, vest in three equal annual installments, assuming the NEO remains employed through each vesting date, and expire ten years from the grant date.
Equity and Incentive compensation linked to increasing profits and returns.
The vast majority of compensation awarded to NEOs ispay-at-risk, or variable dependent upon Company performance. In 2017, 86% of Mr. Klein’s annual total target compensation and 74% (on average)50% of the other NEOs’ annual total target compensation waspay-at-risk.
2017-2019 PSAs are based on EBITDA (weighted 75%) and RONTA (weighted 25%) foraward value in the January 1, 2017 through December 31, 2019 performance period.
The valueform of stock options, increases only if the Company’s stock price increases after the date of grant.to our NEOs (excluding Mr. Klein). For further details about these 2020 outperformance awards see pages 31-33.
The annual incentive awards were based on the following metrics:
The Company’s EPS, ROIC and Working Capital Efficiency (WCE) for Messrs. Klein, Hallinan, Biggart and Wyatt;
MBCI’s OI, OM and WCE for Mr. Randich; and
GPG’s OI, Sales Growth Above Market (Sales) and WCE for Mr. Fink.