The Board currently is composed of eight directors serving staggered three-year terms and divided into three classes: Class I
currently consists of Michael H. Ambrose, Daniel A. Bergeron and Edward D. Stewart; Class II consists of Richard R. Crowell,
Amir Faghri and Dr. Steven H.
Kaplan and Alan B. Levine;Kaplan; and Class III consists of Dr. Michael J. Hartnett and
Dr. Amir Faghri.Dolores J. Ennico. Class I, Class II and Class III directors will serve until our annual meetings of stockholders in
2022, 20212025, 2024 and
2020,2023, respectively. Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors. A director elected by the Board to fill a vacancy in a class (including vacancies created by an increase in the number of directors) will serve for the remainder of the full term of that class and until the director’s successor is duly elected and qualified, or until the director’s resignation or removal.
Our Nominating and Corporate Governance Committee has nominated Dr. Michael J. Hartnett and Dolores J. Ennico for election as the two Class III directors at the annual meeting. Dr. Hartnett is currently a Class III director and was first appointed to the Board in 1993. Ms. Ennico is nominated to replace Dr. Amir Faghri, who is retiring from the Board as of the annual meeting. The Nominating and Corporate Governance Committee reviewed the qualifications of the nominees for election to this class, and unanimously recommended that these nominees be submitted for election to the Board. If elected at the meeting, each of Dr. Hartnett and Ms. Ennico would serve until the 2023 annual meeting and until a successor is duly elected and qualified, or until their resignation or removal.
If you sign your proxy or voting instruction card but do not give instructions with respect to voting for directors, your shares will be voted for the persons recommended by the Board. If you wish to give specific instructions with respect to voting for directors, you may do so by indicating your instructions on your proxy or voting instruction card.
If either of Dr. Hartnett or Ms. Ennico should for any reason become unavailable to serve as a director prior to the annual meeting, the Board will, prior to the annual meeting, (i) reduce the size of the Board to eliminate the position for which that person was nominated, (ii) nominate a new candidate in place of such person and vote in favor of the new candidate all shares represented by stockholder proxies received by the Board, unless authority to vote for all candidates nominated by the Board is withheld, or (iii) leave the place vacant to be filled at a later time.
The following paragraphs provide information as of the date of this proxy statement about each nominee for director. The information presented includes information each director has provided us about their positions held, principal occupation and business experience for the past five years, and the names of other publicly-held companies for which they serve or served as a director during the past five years. We have also provided below information regarding additional experience, qualifications, attributes and skills that lead the Board to the conclusion that each person should serve as a director. We believe that each of our director nominees has a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and ability to exercise sound judgment, as well as a commitment of service to the Company and the Board.
Dr. Michael J. Hartnett has been the Company’s President and Chief Executive Officer since 1992 and Chairman of the Board since 1993. Prior to that, Dr. Hartnett served as President and General Manager of our Industrial Tectonics Bearings Corporation, or ITB, subsidiary from 1990, following 18 years at The Torrington Company, one of the largest bearings manufacturers in the U.S. While at The Torrington Company, Dr. Hartnett held the position of Vice President and General Manager of the Aerospace Business Unit and was, prior to that, Vice President of the Research and Development Division. Dr. Hartnett holds an undergraduate degree from the University of New Haven, a Master’s degree from Worcester Polytechnic Institute and a Doctoral degree in Applied Mechanics from the University of Connecticut. Dr. Hartnett has developed numerous patents, authored more than two dozen technical papers and is well known for his contributions to the field of tribology, the study of friction. Dr. Hartnett served as a director of ATC Technology Corporation, a publicly-owned third-party logistics and automotive aftermarket service provider, until 2010, and served as a director of Process Fab Inc., a private company in the business of precision manufacturing and related services, until 2014. Dr. Hartnett provides the Board with significant leadership and executive experience. His proven leadership capability and his strong knowledge of the complex financial and operational issues facing mid-sized companies provides the Board with a unique and necessary perspective.
Dolores J. Ennico was Chief Human Resources Officer of Olin Corporation from 2009 to 2018 and prior to that served Olin in a variety of capacities from 1974 including Vice President, Administration from 2004 to 2009, Director, Corporate Employee Relations from 2000 to 2004, and Director of Retail Marketing, Pool Chemicals from 1997 to 2000. Ms. Ennico is a member of the Board of Governors of the University of New Haven, and chairs its Academic and Student Affairs Committee, is a member of the Advisory Council of Sacred Heart Academy in Hamden, Connecticut, and is a member of the Board of the Girl Scouts of Connecticut. She earned a Bachelor of Science degree in Microbiology and a Master of Science degree in Biochemistry from Southern Connecticut State University, and a Master of Business Administration degree from the University of New Haven. Ms. Ennico’s vast experience in human capital management, including executive compensation, and her C-suite experience with a Fortune 500 company makes her an excellent candidate for the Board.
Directors are elected by a majority of the votes cast at the meeting. Accordingly, Dr. Hartnett and Ms. Ennico will be elected if they receive the affirmative vote of a majority of the votes cast.
The Board recommends a vote FOR the election to the Board of Directors of the nominees listed above.
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Item 2: The Ratification of the Appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm for Fiscal 2021
The Audit Committee has appointed Ernst & Young LLP as our independent registered public accounting firm for fiscal 2021, and has further directed that the Board submit the selection of Ernst & Young LLP for ratification by the stockholders at the annual meeting. During fiscal 2020, Ernst & Young LLP served as the Company’s independent registered public accounting firm. See “Principal Accountant Fees and Services” below.
This proposal is put before the stockholders because the Audit Committee and the Board believe that it is good corporate practice to seek stockholder ratification of the Audit Committee’s appointment of the independent registered public accounting firm. If the appointment of Ernst & Young LLP is not ratified, the Audit Committee will consider the stockholders’ vote when determining whether to continue the firm’s engagement, but may ultimately determine to continue the engagement of the firm or another audit firm without re-submitting the matter to stockholders. Even if the appointment of Ernst & Young LLP is ratified, the Audit Committee may in its sole discretion terminate the engagement of the firm and direct the appointment of another independent registered public accounting firm at any time during the year if the Audit Committee determines that such an appointment would be in the best interests of the Company and our stockholders.
Representatives of Ernst & Young LLP are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they desire, make a statement.
Ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2021 requires the affirmative vote of a majority of the shares of the Company’s common stock present in person or represented by proxy at the annual meeting and entitled to vote on the proposal.
The Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2021.
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Item 3: Non-Binding Vote on Executive Compensation
The Exchange Act requires the Company to hold a separate non-binding advisory stockholder vote (commonly known as a “Say-on-Pay” proposal) to approve the compensation of our named executive officers as disclosed in this proxy statement in accordance with the SEC’s rules.
The Company is committed to the interests of our stockholders and the delivery of long-term value through an executive compensation program and governance actions that attract, motivate and retain a highly-qualified executive team. As part of this commitment, we intend to continue to maintain a periodic dialogue with our stockholders to address any continued concerns they may have.
The Company objective is to ensure its compensation program
| ● | Drives outstanding Company performance, |
| ● | Properly aligns CEO pay to Company performance, |
| ● | Ensures that no problematic pay practices exist (such as excessive change-in-control or severance packages, benchmarking compensation above peer medians, re-pricing or backdating of options, excessive perquisites, or tax gross-ups), and |
| ● | Reflects appropriate communication with and responsiveness to stockholders. |
Over the last several years we have conducted an outreach program with and received feedback from our stockholders that have led us to develop and implement the following compensation policies, practices and procedures:
| ● | Targeting a 50th percentile market positioning: All elements of the Company’s executive officer compensation are targeted to the 50th percentile of the Company’s selected peer group. |
| ● | Selecting compensation peers based on a range of relevant factors: The Company’s selected peer group is intended to ensure that the Company is not compared to other companies on an arbitrary basis and is not inappropriately limited based on Global Industry Classification Standard (GICS) industry classifications. The Company’s selected peer group takes into consideration a number of relevant factors, such as membership in the highly-engineered product/manufacturing industries, revenue ranges, market capitalization, and eight digit GICS codes for Company-selected peers. |
| ● | The CEO’s employment agreement: The Company’s employment agreement with our CEO, Dr. Hartnett, does not include a (i) guaranteed minimum annual increase in base salary or (ii) discretionary performance bonus. Dr. Hartnett’s annual performance bonus is determined by a formula based on the Company’s performance in relation to an approved operating plan. Effective as of fiscal 2018, the employment agreement was amended to provide for a targeted 20% reduction in total compensation. Accordingly, his base salary was reduced by 20% and his target incentive bonus matrix and his target restricted stock and stock option matrices were revised to target a corresponding 20% reduction. |
| ● | All CEO long-term incentive awards are performance-based: All grants of stock options, restricted stock, or restricted stock units to Dr. Hartnett are made pursuant to a pay-for-performance-based program with no discretionary awards. |
| ● | Stock Ownership Guidelines: The Board maintains stock ownership guidelines for non-employee directors and for the Company’s executive officers. |
| ● | Prohibiting share recycling and adopting share grant limits: The Company’s current stock incentive plans prohibit share recycling, limit the number of shares that may be used for restricted stock or restricted stock unit grants to 50% of the total authorized number of shares pursuant to the plan, and limit the expiration date of any stock option to no more than seven years from the date it is granted. |
| ● | Clawback policy: The Board maintains a “clawback” policy applicable to all executive officers. |
| ● | An ROIC metric for our equity compensation program: The equity compensation program for our CEO and COO includes a substantial portion of the potential restricted stock and stock option grants based on return on invested capital (ROIC) as the measurement metric. |
As discussed in the “Compensation Discussion and Analysis” section below, the Company’s compensation program is designed to reward executives based on favorable performance and results. Compensation policies and plans (including benefits) are designed to attract and retain top quality and experienced executives by providing the opportunity to earn competitive cash compensation based on corporate, business unit and individual performance, plus the opportunity to accumulate stock-based wealth commensurate with the long-term growth and value created for the Company’s stockholders.
Dr. Hartnett is the Company’s founder and has served as our Chief Executive Officer since 1992. Dr. Hartnett is widely regarded as a technology visionary and one of the industry’s most successful business executives. Under Dr. Hartnett’s leadership the Company’s revenues have grown from $82 million in fiscal 1996 to $728 million in fiscal 2020. Dr. Hartnett is also one of our significant stockholders, owning approximately 2% of the outstanding shares of our common stock, directly aligning his interests with those of all our stockholders.
The Compensation Committee approved Dr. Hartnett’s compensation in the amounts disclosed in this proxy statement because he is not only our CEO with overall responsibility for our business strategy, operations and corporate vision, he is also our founder who has guided the Company for more than 25 years, and the Compensation Committee believes he is extremely important to our success. The Compensation Committee believes that given Dr. Hartnett’s role in our operations, strategy and growth, it is appropriate for Dr. Hartnett to receive competitive compensation that performs both retentive and incentivizing functions.
The Compensation Committee approved the specific compensation amounts for fiscal 2020 disclosed in this proxy statement based on our executive compensation philosophy and the Compensation Committee’s subjective evaluation of Dr. Hartnett’s performance, the unique contributions he makes to the Company as its founder, and the various other factors described above. Dr. Hartnett was not present when the Compensation Committee deliberated or voted on his compensation.
The Company seeks to attract executive talent by offering competitive base salaries and annual and long-term performance incentive opportunities. The Company provides incentives that promote both the short-term and long-term financial and strategic objectives of the Company. Achievement of short-term objectives is rewarded through base salary and annual performance incentives, while long-term incentive grants (primarily stock options and restricted stock) encourage executives to focus on and align themselves with the Company’s long-term goals as well. These incentives are based on financial objectives of importance to the Company, including revenue and earnings growth and creation of stockholder value. The Company’s compensation program also accounts for individual performance, which enables the Company to differentiate among executives and emphasize the link between personal performance and compensation.
The Board believes that our compensation program for our named executive officers is appropriately based upon our performance and the individual performance and level of responsibility of the executive officers. We explain this in more detail in the “Executive Compensation” section below.
We are asking our stockholders to indicate their support for our named executive officers’ compensation. This proposal gives our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. Accordingly, we will ask our stockholders to vote FOR the following resolution at the 2020 annual meeting:
“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s proxy statement for the 2020 annual meeting of stockholders pursuant to Item 402 of SEC Regulation S-K (including the Compensation Discussion and Analysis, the compensation tables and narrative discussion contained therein), is hereby APPROVED.”
The “Say-on-Pay” vote is advisory, and therefore not binding on the Company, the Board or the Compensation Committee. The Company, the Board and the Compensation Committee value the opinions of our stockholders and to the extent there is any significant vote against the named executive officers’ compensation as disclosed in this proxy statement, we will consider our stockholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
After our 2017 stockholder meeting, the Board adopted a policy providing for annual “Say-on-Pay” advisory votes. The next “Say-on-Pay” advisory vote will be held at our 2021 annual meeting of stockholders.
The Board of Directors recommends a vote FOR the approval of the compensation of our named executive officers.
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Item 4: Other Matters
As of the date of this proxy statement, the Company knows of no business that will be presented for consideration at the 2020 annual meeting other than the three items referred to above. If any other matter is properly brought before the meeting for action by stockholders, proxies in the enclosed form returned to the Company will be voted in accordance with the recommendation of the Board or, in the absence of such a recommendation, in the manner the proxy holder considers appropriate.
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Number of Meetings of the Board and Committees of Directors
the Board