The Nominating and Corporate Governance Committee (the “Governance Committee”) is responsible for identifying qualified candidates to serve on the Board and recommending nominees to be submitted to our stockholders for election at each annual meeting of stockholders.meeting. After the Governance Committee completes its evaluation of candidates, it presents its recommendation to the Board for consideration and approval.
The Governance Committee does not expect or intend each director to have the same background, skills and experience;experiences; instead, it expects the Board to be composedcomprised of directors with diverse backgrounds, skills and experience.experiences. Although the Board does not have a formal policy regarding diversity, diversity is among the criteria considered by the Board when evaluating candidates. Diversity may include gender, race, ethnicity, geographic origin/foreign citizenship or personal, educational and professional experience. The Governance Committee further believes the backgrounds and qualifications of the directors, considered as a group, should provide an appropriate mix of experience, knowledge and abilities that will enhance the Board’s oversight role.
After evaluating each director and the composition of the full Board, the Governance Committee has recommended each of the current Board members (other than Mr. Hyland)director for election. If elected, each of the eightten individuals nominated for election to the Board will hold office until the 20192021 Annual Meeting of Stockholders and until his or her successor is elected and qualified. Each nominee has agreed to serve as a director if elected. However, if for some unforeseen reason a nominee becomes unwilling or unable to serve, proxies will be voted for a substitute nominee selected by the Board. In lieu of designating a substitute nominee, the Board, in its discretion, may reduce the number of directors.
Information about the nominees, including information concerning their qualifications for office, is set forth below:
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Age: 75 Director since: 2008 Board committees: |
| Lydia W. Thomas |
| | Background Dr. Thomas served as President and Chief Executive Officer of Noblis, Inc., a public interest scientific research, technology and strategy company, from 1996 to 2007. She was previously with The MITRE Corporation, Center for Environment, Resources and Space, serving as Senior Vice President and General Manager from 1992 to 1996, Vice President from 1989 to 1992 and Technical Director from 1982 to 1989. In 2013, she was honored by the Outstanding Directors Exchange as an Outstanding Director of the Year. Dr. Thomas is also a member of the Council on Foreign Relations. She earned a Bachelor of Science degree in zoology from Howard University, a Master of Science degree in microbiology from American University and a Doctor of Philosophy degree in cytology from Howard University. Key Experiences The Board considered Dr. Thomas’ extensive experience at senior executive level positions and particular expertise related to information technology and environment, health and safety matters. |
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| | Michael T. Tokarz
Age: 68
Director since: 2006
Board committees: Compensation (Chair), Governance, Executive
Other public company boards: MVC Capital, Inc. (Chairman) Washington Mutual Investors Fund Other public company boards within the last five years: Walter Energy, Inc., Dakota Growers Pasta Company, IDEX Cabot Corporation CNO Financial Group, Inc., Walter Investment Management Corp. |
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| Chairperson | | Member | A = Audit | E = EHS | X = Executive | G = Governance | C = Compensation |
16 MUELLER WATER PRODUCTS, INC.
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Age: 70 Director since: 2006 Board committees: |
| Michael T. Tokarz |
| | Background Since 2002, Mr. Tokarz has served as a member of the Tokarz Group, LLC, an investment company. From 1996 until 2002, Mr. Tokarz served as a member of the limited liability company that serves as the general partner of Kohlberg Kravis Roberts & Co. L.P., a private equity company. In 2007, he was honored by the Outstanding Directors Exchange as an Outstanding Director of the Year. He earned a Bachelor of Arts degree in economics with high distinction and a Master of Business Administration degree in finance from the University of Illinois. Key Experiences The Board considered Mr. Tokarz’s knowledge and experience in banking and finance, his entrepreneurial and business leadership skills, his more than 20 years of board experience with publicly traded companies and his corporate governance training. |
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The affirmative vote of a majority of the votes cast in respect of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote shall be required to elect these nominees (or a substitute nominee as designated by the Board) to serve as directors, which means that the number of votes cast in favor of a nominee’s election exceeds the number of votes cast against that nominee’s election. If an incumbent director fails to receive a majority of the votes cast, the incumbent director will promptly tender his or her irrevocable offer of resignation to the Board. The Board can then choose to accept the resignation, reject it or take such other action that the Board deems appropriate. See “Corporate Governance— Overview” for more information.
The Board recommends a vote FOR each nominee for director.
PROPOSAL TWO:
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
We provide our stockholders with the annual opportunity to cast an advisory vote on the compensation of our named executive officers. The vote on this proposal represents an additional means by which we obtain feedback from our stockholders about executive compensation. Our Compensation and Human Resources Committee (the “Compensation Committee”) sets executive compensation.
The overall objective of our executive compensation program is to encourage and reward the creation of sustainable, long-term stockholder value. To meet this objective, the Compensation Committee has designed compensation plans for our executive officers that target total compensation at the 50th percentile (plus or minus 15%) of our customized peer group. A significant portion of our executives’ overall compensation is structured as incentive compensation. For fiscal 2017, incentive compensation represented approximately 74% of our current CEO’s total target compensation, and an average of 65% of the total target compensation of the other named executive officers. We believe an emphasis on both short-term and long-term incentive compensation aligns executives’ and stockholders’ interests.
We encourage our stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, which discusses how our compensation policies and procedures implement our compensation philosophy. The Board and the Compensation Committee believe these policies and procedures are strongly aligned with the long-term interests of our stockholders and are effective in implementing our compensation philosophy and in achieving our strategic goals.
Accordingly, we ask for stockholder approval of the following resolution:
RESOLVED, that the stockholders approve, on an advisory basis, the compensation paid to the named executive officers of Mueller Water Products, Inc., as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure in the Company’s proxy statement for the 2018 annual meeting of stockholders.
This vote is advisory and therefore not binding on us, the Board or the Compensation Committee. At last year’s annual meeting of stockholders, over 98% of votes cast were in support of the compensation of our named executive officers. The Board and the Compensation Committee value the opinions of our stockholders. The Compensation Committee will consider the result of this year’s vote, as well as other communications from stockholders relating to our compensation practices, and take them into account in future determinations concerning our executive compensation program. See “Compensation Discussion and Analysis — Highlights of 2017 Executive Compensation”.
The Board recommends a vote FOR Proposal Two.
PROPOSAL THREE:
RATIFICATION OF THE APPOINTMENT OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has authority to retain and terminate the services of our independent registered public accounting firm. The Audit Committee has appointed Ernst & Young LLP as the independent registered public accounting firm to audit our consolidated financial statements and internal control over financial reporting for the fiscal year ending September 30, 2018, subject to negotiation of definitive fee arrangements. Although stockholder ratification of Ernst & Young’s appointment is not required, the Board believes submitting the appointment to our stockholders for ratification is a matter of good corporate governance. See below for a description of the fees Ernst & Young billed us for fiscal 2017 and fiscal 2016.
A representative of Ernst & Young is expected to be present at the Annual Meeting. The representative will have an opportunity to make a statement and will be available to respond to stockholder questions.
The Board recommends a vote FOR Proposal Three.
FEES AND SERVICES OF THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee appointed Ernst & Young as the independent registered public accounting firm to audit our consolidated financial statements and internal control over financial reporting for fiscal 2017.
Audit Fees and Other Fees
The following table shows the approximate fees for audit and other services provided by Ernst & Young for fiscal years 2017 and 2016 (in millions).
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Audit fees(1) | $ | 2.4 |
| | $ | 2.5 |
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| Audit-related fees | — |
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| Tax fees | 0.4 |
| | 0.1 |
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| Total fees | $ | 2.8 |
| | $ | 2.7 |
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(1)Other public company boards: MVC Capital, Inc. (Chairman) Other public company boards within the last five years: Walter Energy, Inc., Dakota Growers Pasta Company, IDEX Corporation, CNO Financial Group, Inc., Walter Investment Management Corp. | Reflects fees for professional services performed by Ernst & Young for annual audits (including out-of-pocket expenses) and quarterly limited reviews of our consolidated financial statements.
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Pre-Approval of Services Performed by the Independent Registered Public Accounting Firm | | | | | | | | |
Age: 69 Director since: 2019 Board committees: |
| Stephen C. Van Arsdell |
| | Background Mr. Van Arsdell is a former senior partner of Deloitte LLP, where he served as Chairman and Chief Executive Officer of Deloitte & Touche LLP from 2010-2012 and as Deputy Chief Executive Officer from 2009-2010. He also served as a member of Deloitte’s Board from 2003-2009. During this time, he held the position of Vice-Chairman of the Board and served on and chaired various committees thereof, including the Audit and Finance Committee. He is currently a member of the Dean’s Advisory Council for the Gies College of Business at the University of Illinois and a member of the Board of Directors and a past Chair of the University of Illinois Alumni Alliance. He also currently serves on the Board of Trustees of The Morton Arboretum, for which he is the Treasurer and Chair of the Finance Committee, and is a past chair of the Board of Trustees of The Conservation Foundation. Mr. Van Arsdell earned both a Bachelor of Science and a Masters of Accounting Science degree in Accounting from the University of Illinois in 1972 and 1973, respectively, where he was a James Scholar. He is a certified public accountant. Key Experiences The Board considered Mr. Van Arsdell’s extensive background in audit and finance together with his expertise in accounting, risk management and corporate governance. |
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Other public company boards: First Midwest Bancorp, Inc. |
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| Chairperson | | Member | A = Audit | E = EHS | X = Executive | G = Governance | C = Compensation |
Board Refreshment/Board Succession Planning
The Audit Committee has adopted procedures for pre-approving all audit and non-audit services provided byBoard believes that thoughtful refreshment is necessary to ensure that the independent registered public accounting firm. For both types of pre-approval, the Audit Committee considers whether the services are consistentBoard remains aligned with the Securitiesneeds of the Company as it evolves. To that end, the Governance Committee regularly assesses director succession and Exchange Commission (“SEC”) rulesboard refreshment, with a focus on auditor independencemaintaining an optimal mix of institutional knowledge, industry expertise and whetherfresh insight among its directors.
In addition to increasing Board diversity, the independent registered public accounting firmBoard’s refreshment efforts over the past three years have resulted in an average director tenure of 9 years, which is ablesignificantly lower than the average director tenure of other S&P 500 companies (2019 U.S. Spencer Stuart Board Index).
While the Board believes that tenure and age are important considerations in assessing Board composition, it also believes that the institutional knowledge and industry expertise contributed by its longer-tenured directors are of significant value to the Company and its current strategic direction. For this reason, the Board does not make membership decisions based solely on either metric.
Of equal importance is the varied perspective that new Board members bring. Two new directors were added to the Board this year — their addition reflects the Board’s strong commitment to diversity across multiple dimensions including technical and financial skills, expertise and career background as well as personal traits such as age, gender and ethnicity.
Board Composition
The Board continues to identify and incorporate directors with diverse experiences and perspectives to provide the most effective service. Non-audit fees to be incurredCompany with thoughtful and engaged board oversight. The Board is currently composed of ten directors. Each of our director nominees is independent, except Mr. Hall, our President and CEO. As demonstrated by the independent registered public accounting firm for services permitted by the Sarbanes-Oxley Act of 2002 to be performed by such firm must be approved in advance by the Audit Committee Chairman (for individual projects in amounts up to $100,000) or the Audit Committee. The Audit Committee periodically monitors the services rendered and actual fees paid to the independent registered public accounting firm to ensure the services are within the parameters approved by the Audit Committee.
REPORT OF THE AUDIT COMMITTEE
Committee Composition and Skills
The Audit Committee is comprised of three independent directors meeting the requirements of applicable SEC and NYSE rules. The Board has determined all Audit Committee members are “financially literate” for purposes of the NYSE Listed Company Manual (the “NYSE Manual”) and qualify as audit committee “financial experts” within the meaning of the rules and regulations of the SEC. See “Matters to be Voted On— Proposal One” for a description of the business background of each member. No member of the Audit Committee serves on the audit committee of more than three public companies.
Meetings
The Audit Committee met 13 times during fiscal 2017, including eight times by teleconference. Meetings include periodic executive sessions with the independent registered public accounting firm, our internal auditors and our management.
Responsibilities of the Audit Committee, Management and the Independent Auditor
The Audit Committee’sfollowing key responsibilities are set forth in its charter, which was approved bymetrics, the Board actively seeks highly qualified women, individuals from underrepresented minorities and is available on our website. See “Corporate Governance— Board Operations— Board Committee Information” for more information concerningthose with a wealth of diverse skills and talents to join the Audit Committee and its responsibilities. For the audit of our consolidated financial statements for fiscal 2017 and our internal control over financial reporting:
Management was primarily responsible for preparing our financial statements and establishing and maintaining effective internal control over financial reporting. The Audit Committee was responsible for monitoring and overseeing our financial reporting and audit functions, as well as our internal control over financial reporting and disclosure.
Ernst & Young, our independent registered public accounting firm for fiscal 2017, was responsible for performing an independent audit of our consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States and was also responsible for performing an independent audit of, and expressing an opinion on, our internal control over financial reporting.
The Audit Committee reviewed and discussed with management and Ernst & Young the audited consolidated financial statements for the year ended September 30, 2017, our quarterly consolidated financial statements and operating results for each quarter in the fiscal year and the related significant accounting and disclosure issues, and the effectiveness of our internal control over financial reporting.
The Audit Committee reviewed management’s report contained in our annual report on Form 10-K for the year ended September 30, 2017 (“Annual Report”), as well as Ernst & Young’s Reports of Independent Registered Public Accounting Firm included in the Annual Report related to its audits of the consolidated financial statements and internal control over financial reporting.
The Audit Committee discussed with Ernst & Young matters required to be discussed by Statement on Auditing Standards No. 16, as amended, “Communication with Audit Committees.” In addition, Ernst & Young provided the Audit Committee with the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and the Audit Committee has discussed with Ernst & Young the firm’s independence.
Audited Consolidated Financial Statements
Based on the foregoing discussions with and reports of management and our independent registered public accounting firm and the Audit Committee’s review of the representations of management, the Audit Committee recommended to the Board the inclusion of our consolidated financial statements in the Annual Report.
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Audit Committee | 9 of our 10 directors are independent, including the Chairman | | 10 of our 10 directors have Executive Leadership/CEO experience |
Jerry W. Kolb, Chair | 3 of our 10 directors are women | | 4 of our 10 directors are from underrepresented minorities |
Thomas J. Hansen |
Bernard G. Rethore7 of our 10 directors have Corporate Governance experience |
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Director Nomination Process
CORPORATE GOVERNANCE | | | | | |
In discharging its responsibility related to director nominations, the Governance Committee receives input from other directors and, if applicable, an independent professional search firm. It also considers and evaluates candidates recommended by stockholders, as described below. The Governance Committee utilizes the same criteria to evaluate all candidates, regardless of who recommends the candidate. The Governance Committee’s evaluation includes a reference and background check, as well as interviews and discussions about the candidate’s qualifications, availability and commitment. The Chair of the Governance Committee interviews each qualified candidate and selects candidates to be interviewed by other members of the Governance Committee. The Governance Committee reviews the results of all interviews and makes a recommendation to the full Board with respect to nominating a candidate for election to the Board. The Board expects all candidates recommended to the full Board to have received the approval of all members of the Governance Committee. In evaluating candidates, the Governance Committee considers a variety of qualifications, experience, attributes and skills, and recognizes that a diversity of knowledge, viewpoints and experience can enhance the Board’s effectiveness. Accordingly, as part of its candidate evaluation, the Governance Committee considers how the candidate’s background, qualifications, experience, attributes and skills may enhance the quality of the Board’s deliberations and decisions. | Nomination Process At-a-Glance 1 Establish Candidate Pool 2 Conduct Reference and Background Check 3 Interview 4 Recommend |
Set forth below is a summary of the key skills and experience necessary for the Board as a whole. See “Proposal One - Election of Ten Directors — The Board of Directors” for information concerning each nominee’s relevant skills and experience.
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| Skill/Experience | Relevance to Mueller Water Products |
| Executive Leadership/CEO experience. Experience serving in top management positions is important since these directors bring perspective in analyzing, shaping and overseeing strategy and the execution of important operational and policy issues at a senior level. |
| Corporate Governance expertise. Directors who have corporate governance experience can assist the Board in fulfilling its responsibilities related to the oversight of our legal, environmental and regulatory compliance. |
| Financial/Capital Allocation expertise. Knowledge of financial markets, financing and funding operations, accounting and financial reporting processes is important since it assists our directors in understanding, advising and overseeing our capital structure, financing and investing activities, financial reporting and internal control of these activities. |
| Government and Regulatory Affairs expertise. Directors who have served in government positions or who have worked extensively with governments, environmental or regulatory bodies can provide oversight of compliance with rules and regulations and insight into working constructively with government, environmental and regulatory bodies. |
| International Business experience. Since we manufacture and sell certain of our products outside the United States, directors with global expertise can provide a useful business and cultural perspective regarding significant aspects of our businesses. |
| Mergers and Acquisitions experience. Since we have a strategy of selectively pursuing potential acquisitions, directors who have a background in M&A transactions can provide useful insight into developing and implementing strategies for growing our businesses through combination with other organizations. |
| Multiple-part Manufacturing and Operations experience. Experience in manufacturing is useful in understanding our research and development efforts, product engineering, design and manufacturing, operations, products and the market segments in which we compete. |
| Strategic Planning expertise. We operate in competitive markets and our businesses are subject to a wide variety of risks. Directors who have strategic planning experience can assist the Board in adopting policies and procedures responsive to the risks we face. |
| Enterprise Risk Management experience. In light of the potential financial and reputational damage that can occur when companies fail to oversee compliance and properly manage risk, it is increasingly important to include directors with extensive enterprise risk management experience . |
| Environment, Health and Safety expertise. We are committed to responsible environmental stewardship and rigorous health and safety oversight. We believe directors with EHS experience can help drive strong environment, health and safety performance not only at the most strategic level but also throughout the organization. |
| Technology/Systems experience. Directors with backgrounds in engineering disciplines, computer science, software development and cyber security are increasingly important in light of our strategic focus on manufacturing and product technologies. |
| Materials Science and Engineering experience. Directors with a background in these areas are important to our understanding of how metals, nanomaterials and other substances meet the electrical, chemical or mechanical requirements of our products. |
| Branding expertise. Directors who have worked to define and maintain perceptions of the nature and focus of an enterprise, specifically during transformative change, can be an invaluable asset. |
Director Candidate Recommendations
A stockholder who wishes to submit a director candidate for consideration by the Governance Committee must do so by writing our Corporate Secretary and including the candidate’s biographical data. See “Questions About Voting and the Annual Meeting.”
Board Tenure Policy
The Board believes that an appropriate mix of tenured directors and newer directors with fresh perspectives is necessary to ensure a vital and effective Board. Since January 2017, the Board has appointed three new directors, advancing both
20 MUELLER WATER PRODUCTS, INC.
the skill set and experience profile of the Board while simultaneously increasing its diversity. Complementing this strategy of refreshment and enhancement is a commitment to making the most of our longer-tenured directors’ experience and intricate knowledge of the Company’s operations. While the Board believes that age and tenure are important considerations in assessing Board composition, it also believes the best interests of the Company are served by being able to take advantage of all available talent and that a significant degree of continuity year-over-year is beneficial to stockholders. For this reason, the Board does not have absolute limits regarding age of directors or the length of time that a director may serve but considers these aspects among several factors in re-nomination decisions.
The Board’s Role and Responsibilities
Overview
Our Board of Directors is committedresponsible for overseeing the business affairs of the Company, including regularly monitoring the effectiveness of management’s implementation of strategy, policy, risk mitigation tactics and other decisions. As the Company continues to establishinggrow and maintaining strong corporate governance practices that reflect high standardstransform, the Board not only guides management, but also assists in reacting to changing environments. The Board receives regular updates and engages actively with the management team regarding key strategic initiatives, technology trends, competitive and economic changes and other important developments and is also involved in strategic planning and review each year. Combined with management’s execution of ethics and integrity and promoteour business strategy, the Board’s oversight promotes the creation of long-term stockholder value.value, with a focus on assessing both the potential opportunities available to us and the risks that we might encounter.
To
Board Risk Oversight
While the Board maintains oversight responsibility for how we manage risk, it charges management with assessing and mitigating that end, we recently amended our Bylaws regarding director electionsrisk through the development, implementation and beginning with this year’s Annual Meeting, we are requiring our directors to be elected by the affirmative vote of a majoritymaintenance of the votes cast atCompany's risk management processes and cyber security program. As a result, our internal control environment has been specifically designed to identify and manage risks and to facilitate communication with the Annual Meeting. In connection with this change, we have also amended our Corporate Governance Guidelines (the “Guidelines”) to provide that an incumbent director who fails to receive a majority of the votes cast must tender an irrevocable offer of resignationBoard. Our internal audit department, which reports to the Board. The Board will then consider a number of factorsAudit Committee, administers our enterprise risk assessment and, in determining whethercoordination with our legal and compliance functions, is responsible for ongoing enterprise risk management processes. It also regularly reports to accept or reject the resignation, including the director’s contributions to the Company and the reasons he or she did not obtain the requisite stockholder vote.
Our corporate governance structure and processes are set forth in our key governance documents, including the Guidelines. The Guidelines govern the operation of the Board and its committees on risk-related issues as a complement to our strategic planning process. Additionally, the Audit Committee consults with management regarding cyber security initiatives and guiderequests that management report to the Audit Committee and/or the full Board regularly on its assessment not only of cyber security, but also of the operational, financial and accounting, competitive, reputational and legal risks to the Company. The Board also considers specific risk topics and receives regular reports from the heads of our principal businesses and corporate functions that include discussion of the risks and exposures inherent in their respective areas of responsibility.
The Board executes its risk oversight function both as a whole and through delegation to its committees, in the execution of their respective responsibilities. The Governance Committee reviews the Guidelines at least annually and the Board updates the Guidelines periodically in response to changing regulatory requirements, evolving practices and otherwise as circumstances warrant.
In July 2016, a group of leading executives and institutional investors published a statement of “Commonsense Principles of Corporate Governance.” These Commonsense Principles set forth a number of recommendations and guidelines about the roles and responsibilities of boards, public companies and stockholders, and are intended to provide guidance on corporate governance that “works in the real world.”
Because we believe an important aspect of achieving a strong and effective corporate governance structure is to encourage an open dialog with our stockholders, we have reviewed our policies and procedures in light of the suggestions set forth in the Commonsense Principles. Accordingly, highlighted below are the key areas of our corporate governance practices that we believe align with the Commonsense Principles.
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Board CompositionAudit Committee •Oversees risk management related to accounting and Leadership:financial reporting, the audit process, internal control over financial reporting and disclosure controls and procedures •Oversees the internal audit function •Monitors legal and compliance issues and active matters •Reviews cyber and data security matters, including our risk mitigation initiatives |  | Our Board is led by a Chairman who is not•Oversees risk management related to the risks and rewards associated with our CEOcompensation policies and practices •Oversees management development and succession planning across senior positions |
Environment, Health and Safety Committee •Oversees risk management related to risks directly related to the environment, health and safety areas | | Each of our director nominees, other than our CEO, is independent |
| | Our directors have complementaryNominating and diverse skills sets, backgroundsCorporate Governance Committee•Oversees risk management related to governance structure and experiencesprocesses and are continually educated on our industry |
| | Our Board size promotes an open dialogue among directors |
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Majority Voting | | We use a majority voting standard in uncontested director elections, and require incumbent directors who fail to receive a majority of the votes cast to tender their resignation |
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Board Committee Structure: | | We have a well-developed committee structure with clearly understood responsibilities |
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Director Effectiveness: | | Our Board and committees conduct regular self-assessments, led by our Governance Committee, to assess effectiveness and areas for improvement |
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Director Responsibilities: | | Each of our directors has input into the setting of the Board agenda |
| | Each of our directors has unfettered access to management, and committees have the authority to retain independent advisors |
| | Our Board frequently meets in executive session without the CEO or other members of management |
| | Our Board focuses on significant risks and seeks the proper calibration of risk and reward while focusing on the longer-term interests of our stockholders |
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Director Compensation: | | We pay a substantial portion of non-employee director compensation in equity awards |
Management Succession Planning
Management conducts annual talent reviews. During these reviews, the executive leadership team discusses succession plans for key positions and identifies top talent for development needed in future leadership roles. The Board of Directors maintains a succession and contingency plan for the CEO position.
Corporate Governance Policies and Materials
Our Code of Business Conduct and Ethics (the “Ethics Code”“Code of Conduct”) applies to all of our employees and directors. We also make available an ethics hotlinehelpline that employees and others may use to anonymously report suspected violations of the Ethics Code.Code of Conduct. We will disclose promptly any amendments to, or waivers from, provisions of the Ethics Code of Conduct on our website at www.muellerwaterproducts.com,, as may be required under applicable rules.
The tableListed below listsare some of the Board policies and other materials relating to our corporate governance that are available on our website. We will also provide copies of any of these policies and materials without charge upon written request to our Corporate Secretary at Mueller Water Products, Inc., 1200 Abernathy Road, N.E., Suite 1200, Atlanta, Georgia 30328. The information on our website is not a part of this Proxy Statement. |
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Corporate Governance Policies and Materials |
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• Corporate Governance Guidelines
• Code of Business Conduct and Ethics
• Board Committee Charters
| • Certificate of Incorporation
• Bylaws
• Stock Ownership Guidelines
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Board Composition
Board Size
The Board is currently composed of nine directors and, following Mr. Hyland’s retirement as discussed above, will be composed of eight directors. Each director is independent, except Mr. Hyland, our Executive Chairman, and Mr. Hall, our President and CEO. The Board held 10 meetings in fiscal 2017 and each director attended over 96% of the total number of meetings of the Board and committees of which he or she was a member.
Director Independence
The Governance Committee and the Board annually assess the outside affiliations of each director to determine if these affiliations could cause a potential conflict of interest or interfere with the director’s independence. The Guidelines set forth the categorical standards of independence for the Board. To be considered “independent” for purposes of the director qualification standards:
The director must meet bright-line independence standards under the NYSE Manual; and
The Board must affirmatively determine the director otherwise has no material relationship with us directly or as an officer, stockholder or partner of an organization that has a relationship with us. See the Guidelines on our website for more detail.
Each of our directors, other than our Executive Chairman and our CEO, is independent pursuant to our director qualification standards and each member of the Audit Committee, the Compensation Committee and the Governance Committee is independent in accordance with the NYSE Manual and our director independence standards.
No member of those committees receives compensation from us other than directors’ fees and no member is an affiliated person of ours (other than by virtue of his or her directorship).
All members of the Audit Committee meet the additional standards for audit committee members of publicly traded companies required by the Sarbanes-Oxley Act of 2002.
All members of the Compensation Committee qualify as “non-employee directors” as defined in Rule 16b-3 under the Exchange Act and meet the independence requirements of the NYSE Manual and additional standards applicable to “outside directors” under Section 162(m) of the Code.
Director Nomination Process
In discharging its responsibility related to director nominations, the Governance Committee receives input from other directors and, if applicable, an independent professional search firm. It also considers and evaluates candidates recommended by stockholders, as described below. The Governance Committee utilizes the same criteria to evaluate all candidates, regardless of who recommends the candidate.
The Governance Committee’s evaluation includes a reference check, interaction, interviews and discussions about the candidate’s qualifications, availability and commitment. The Chair of the Governance Committee interviews each qualified candidate and selects candidates to be interviewed by other members of the Governance Committee. The Governance Committee reviews the results of all interviews and makes a recommendation to the full Board with respect to nominating a candidate for election to the Board. The Board expects all candidates recommended to the full Board to have received the approval of all members of the Governance Committee.
In evaluating candidates, the Governance Committee considers a variety of qualifications, experience, attributes and skills, and recognizes that a diversity of knowledge, viewpoints and experience can enhance the Board’s effectiveness. Accordingly, as part of its candidate evaluation, the Governance Committee considers how the candidate’s background, qualifications, experience, attributes and skills may enhance the quality of the Board’s deliberations and decisions.
Set forth below is a summary of the key skills and experience that is necessary for the Board as a whole. See “Matters to be Voted On — Proposal One” for information concerning each nominee’s relevant skills and experience.
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•Corporate Governance Guidelines | CEO/Executive Leadership experience.• Experience serving in top management positions is important since these directors bring perspective in analyzing, shaping and overseeing the execution of important operational and policy issues at a senior level.Board Committee Charters
| | • | Corporate governance expertise.• Directors who have corporate governance experience can assist the Board in fulfilling its responsibilities related to the oversight of our legal and regulatory compliance.Bylaws
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•Code of Business Conduct and Ethics | Financial/Capital Allocation expertise.• KnowledgeCertificate of financial markets, financing and funding operations, accounting and financial reporting processes is important since it assists our directors in understanding, advising and overseeing our capital structure, financing and investing activities, financial reporting and internal control of these activities.Incorporation
| | • | Government and regulatory affairs expertise.• Directors who have served in government positions or who have worked extensively with governments or regulatory bodies can provide oversight of compliance with rules and regulations and insight into working constructively with governments or regulatory bodies.
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• | International business experience. Since we manufacture and sell certain of our products outside the United States, directors with global expertise can provide a useful business and cultural perspective regarding significant aspects of our businesses.
| | • | Marketing expertise. Since we believe many of our products benefit form strong brand recognition, directors who have marketing experience can provide expertise and guidance as we seek to maintain and expand brand and product awareness and a positive reputation.Stock Ownership Guidelines
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• | Mergers and acquisitions experience. Since we have a strategy of selectively pursuing potential acquisitions, directors who have a background in M&A transactions can provide useful insight into developing and implementing strategies for growing our businesses through combination with other organizations.
| | • | Multiple-part manufacturing and operations experience. Experience in manufacturing is useful in understanding our research and development efforts, product engineering, design and manufacturing, operations, products and the market segments in which we compete.
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• | Offshore sourcing expertise. Directors with knowledge of trends and developments in offshore sourcing are important to us since we periodically evaluate offshore sourcing of certain of our products.
| | • | Strategic planning expertise. We operate in competitive markets and our businesses are subject to a wide variety of risks. Directors who have strategic planning experience can assist the Board in adopting policies and procedures that respond to the risks we face.
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• | Compliance/Risk Management. Directors with compliance and risk management experience is increasingly important in light of the potential financial and reputational damage that can occur when companies fail to oversee compliance and properly manage risk.
| | • | Environment, Health and Safety. We are committed to responsible environmental stewardship and rigorous health and safety programs. We believe directors with EHS experience can help drive strong environment, health and safety performance not only at the most strategic level but also throughout the entire organization.
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• | Technology/Systems experience. Directors with backgrounds in the engineering disciplines, computer science, software development or cyber security are increasingly important in light of our strategies around manufacturing and product technologies.
| | • | Diversity. We are committed to seeking director candidates who offer diverse backgrounds and varied perspectives along with the other requisite skills, experience and character necessary to serve on our Board.
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Director Candidate Recommendations
A
Stockholder Engagement
We believe that strong corporate governance should include regular engagement with our stockholders to enable us to understand and respond to stockholder who wishesconcerns. Understanding the issues important to submitour stockholders is critical to ensuring that we address their concerns in a director candidate for consideration bymeaningful and effective way. In 2019, management and the Governance Committee must do so by writingBoard, as appropriate, continued to reinforce our Corporate Secretarycommitment to building long-term relationships with our stockholders. As part of our engagement program, we visit representatives of many of our top institutional stockholders to solicit feedback on performance, strategy, vision, risk management and including the candidate’s biographical data. See “Stockholder Information — Procedures for Business Mattersother matters. We strive to be responsive to our stockholders and Director Nominations for Consideration at Next Year’s Annual Meeting of Stockholders”.are committed to continued engagement.
Board OperationsStructure
Board Leadership Structure
Our governance documents provide the Board with the flexibility to select the appropriate leadership structure for us. Thethe Company, and the Board does not have a formal policy as to whetherbelieves separating the roles of Chairman and Chief Executive Officer should be separate or whetheris in the best interest of the Company and its stockholders. Mr. O’Brien serves as our Non-Executive Chairman, should be an employee or a non-employee director.and Mr. Hall serves as our President and Chief Executive Officer.
Under our Bylaws, the Chairman presides over meetings of the Board and of stockholders, while the Chief Executive Officer has general and active management of our property, business and affairs, subject to the supervision and oversight of the Board. Mr. Hyland currently serves as our Executive Chairman and Mr. Hall serves as our President and Chief Executive Officer. Mr. O’Brien serves as our Lead Director.
The Board currently intends to appoint an independent, non-employee director as Chairman of the Board in conjunction with the 2018 Annual Meeting of Stockholders. The Board believes this structure facilitates decisive and effective leadership and, when combined with our other governance policies and procedures, provides appropriate opportunities for oversight, discussion and evaluation of decisions and direction by the Board.
Director Independence
The Governance Committee and the Board annually assess the outside affiliations of each director to determine if these affiliations could cause a potential conflict of interest or interfere with the director’s independence. The Company's Corporate Governance Guidelines (the “Guidelines”) set forth the categorical standards of independence for the Board. To be considered “independent” for purposes of the director qualification standards:
•The director must meet bright-line independence standards under NYSE listing standards; and
•The Board must affirmatively determine the director otherwise has no material relationship with us directly or as an officer, stockholder or partner of an organization that has a relationship with us. See the Guidelines on our website www.muellerwaterproducts.com for more detail.
Each of our directors, other than our CEO, is independent pursuant to our director qualification standards and each member of the Audit Committee, the Compensation Committee and the Governance Committee is independent in accordance with NYSE listing standards.
•No member of those committees receives compensation from us other than directors’ fees and no member is an affiliated person of ours (other than by virtue of his or her directorship).
22 MUELLER WATER PRODUCTS, INC.
•All members of the Audit Committee meet the additional standards for audit committee members of publicly traded companies required by the Sarbanes-Oxley Act of 2002.
•All members of the Compensation Committee qualify as “non-employee directors” as defined in Rule 16b-3 under the Exchange Act and meet the independence requirements of NYSE listing standards and additional standards applicable to “outside directors” under Section 162(m) of the Internal Revenue Code.
Executive Sessions
Our non-employee directors meet at least quarterly in executive sessions at which only non-employee directors are present. Our Non-Executive Chairman presides at these sessions.
Board Committee Information
The Board has four standing committees: the Audit Committee, the Compensation and Human Resources Committee (“Compensation Committee”), the Governance Committee and the Environment, Health and Safety Committee (“EHS Committee”). An additional committee, the Executive Committee, meets only as needed. Each standing committee member satisfies both the NYSE’s and our definitions of an independent director, and the Board has determined that all Audit Committee members are “financially literate” under the NYSE Manuallisting standards and qualify as “audit committee financial experts” within the meaning of the rules and regulations of the SEC.
Each standing committee meets periodically throughout the year, reports its actions and recommendations to the Board, receives reports from management and annually evaluates its performance. Additional information about the committees is provided below. In addition to the Executive Committee, Mr. O'Brien is an ex officio member of all other standing committees. See the committee charters on our website at www.muellerwaterproducts.com for more detail.
Audit Committee
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| Audit Committee | | | | | | |
Current MembersCURRENT MEMBERS
Kolb (Chair) Hansen Rethore Van Arsdell | | | | | | •Oversees the integrity of our financial reporting statements, financial reporting activities and accounting policies and procedures. •Selects and oversees the independent registered public accounting firm, approves its services (including both audit and non-audit services) and fees, and evaluates its performance. In its evaluation, the Audit Committee considers the firm’s reputation for independence and integrity, the qualifications and performance of the firm’s personnel and the effectiveness of the firm’s communications, the appropriateness of fees and Public Company Accounting Oversight Board reports on the firm and its peers. •Selects and reviews and evaluates the lead partner of the audit engagement team. •Reviews the scope and results of the independent registered public accounting firm’s audits. •Reviews the scope of the internal audit function, internal audit plans, internal audit reports and corrective actions taken in response to internal audit findings. Evaluates the performance of the internal audit function. •Oversees our internal accounting systems and related internal control over financial reporting, as well as our financial risk management profile. •Oversees our legal compliance and ethics programs and the Ethics Code.Code of Conduct. •Reviews cyber and data security matters, including our risk mitigation initiatives. |
| 13 meetings in fiscal 20172019 | |
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Compensation and Human Resources Committee
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| | | | | | | | | | | | | | | | | | | |
| Compensation and Human Resources Committee | | | | | | |
Current MembersCURRENT MEMBERS
Tokarz(Chair) Franklin Kolb | | | | | | • OverseesReviews, approves and administers our executive compensation and equity-based plans. •Reviews and approves goals and objectives for compensation of our CEO, evaluates performance in relation to these goals and objectives, and determines and approves the compensation of our CEO. •Reviews and approves the compensation of all executive officers. •Reviews and recommends the compensation of non-employee directors. •Reviews and approves stock ownership requirements for officers and directors. •Oversees an annual risk assessment process related to compensation programs. • ManagesReviews succession planning across senior positions. |
| 76 meetings in fiscal 20172019 | |
| | | | | |
Nominating and Corporate Governance Committee
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| | | | | | | | | | | | | | | | | | | |
| Environment, Health and Safety Committee | Current Members
Rethore (Chair)
Kolb
Thomas
Tokarz
| | • Establishes criteria for and qualifications of persons suitable for nomination as directors and reports recommendations to Board.
• Develops and annually reviews the Guidelines.
• Oversees the annual Board and committee self-assessment process.
• Makes recommendations to the Board related to committee structure and membership.
|
| 9 meetings in fiscal 2017 | |
Environment, Health and Safety Committee
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| | | |
| Current MembersCURRENT MEMBERS
Thomas (Chair) Franklin Hansen Ortiz | | | | | | •Reviews policies and procedures related to compliance with laws, regulations and rules pertaining to the environment, health and safety. •Monitors compliance with health, safety and environmental policies, programs and practices. •Encourages activities and initiatives that demonstrate sound environmental stewardship. •Reviews scope of internal and independent environmental, health and safety audits and assessments. •Reviews results of internal compliance reviews and remediation projects. •Supports the Board’s responsibilities relating to diversity, sustainability, and corporate social responsibility. •Reviews the Company’s environmental, health and safety performance and related initiatives. |
| 4 meetings in fiscal 20172019 | | | | | | |
Executive Committee
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| | | | | | | | | | | | | | | | | | | |
| Nominating and Corporate Governance Committee | | | | | | |
CURRENT MEMBERS Rethore (Chair) Kolb Thomas Tokarz | | | | | | Current Members•Establishes criteria for and qualifications of persons suitable for nomination as directors and reports recommendations to Board.
Hyland (Chair)•Selects and recommends director candidates to be considered for election.
•Develops and annually reviews the Governance Guidelines. •Oversees the annual Board and committee evaluation process. •Makes recommendations to the Board related to committee structure and membership. •Advises the Board regarding corporate governance matters. •Monitors the orientation and continuing education programs for directors. |
| 7 meetings in fiscal 2019 | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Executive Committee | | | | | | |
CURRENT MEMBERS Hall(Chair) Kolb O’Brien Rethore Tokarz | | | | | | •Exercises interim powers delegated to it when a matter requires expeditious Board action or when it would not be practical for the full Board to meet. |
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| 20 meetings in fiscal 20172019 | | | | | | |
Board Practices, Processes and Policies
History of Commitment to Good Governance Practices
The Board has always followed a principled framework in carrying out its oversight responsibilities related to the business of the Company. The Board is committed to good corporate governance practices and a sound governance structure that promotes the interests of all stockholders. While the underlying guiding principles of the Board remain consistent, the implementation of these principles continues to be flexible and evolve in response to ever-changing business, legal and social environments.
24 MUELLER WATER PRODUCTS, INC.
Director Attendance
As discussed above, the Board held 10 meetings in fiscal 2017 and each director attended over 96% of the total number of meetings of the Board and its committees of which he or she was a member in fiscal 2017. Each current director also attended the 2017 | | | | | |
| The Board held 9 meetings in fiscal 2019 and each director attended at least 97% of the total number of meetings of the Board and its committees of which he or she was a member in fiscal 2019. Each current director also attended the 2019 Annual Meeting of Stockholders. | Fiscal 2019 Board/Committee meeting attendance |
| |
Executive Sessions
Our non-employee directors meet at least quarterly in executive sessions at which only non-employee directors are present. Our Lead Director, presides at these sessions.
Board and Committee Evaluations
Each year, the Guidelines require the Board to conduct an evaluation of its own performance. Additionally, our committee charters require each of our committees to conduct an annual performance evaluation. The Governance Committee is responsible for overseeing the annual self-assessmentassessment process on behalf of the Board and its committees. Throughout the self-assessmentevaluation process, the Governance Committee solicits comments from directors to ensure that the Board and its committees are functioning effectively. The Governance Committee reviews comments from each director to assess directors’ contributions to the Board, evaluateevaluates the Board’s
contributions to the Company and identifyidentifies areas for improvement in the Board’s performance. The Governance Committee submitsdiscusses its findings towith the Board in an annual report discussingannually regarding ways in which the Board and its committees can improve their key functions.
Board Risk OversightDirector Orientation and Continuing Education
The Company’s Guidelines establish recommendations for director onboarding and continued education. All new members of the Board maintains oversight responsibility forparticipate in the Company’s new director orientation program, including corporate document and policy reviews, management meetings and site visits. As newly elected directors, Dr. Ortiz and Mr. Van Arsdell attended the orientation program to learn about the Company’s business and board processes. In addition, during the July Board meeting, directors participate in an in-depth review of the strategy of the Company and have the opportunity to meet with senior management and obtain insights into the business. All directors are encouraged to participate in continuing education programs, with any associated expenses reimbursed by the Company, to stay current and knowledgeable about the Company’s industry, market and overall environment. Such orientation and continuing education programs are overseen by the Governance Committee.
Corporate Governance Guidelines
Our Board is committed to establishing and maintaining strong corporate governance practices that reflect high standards of ethics and integrity and promote long-term stockholder value.
To that end, our managementBylaws provide that our directors must be elected by the affirmative vote of risk and charges management with assessing and managing risk. Our internal control environment is designeda majority of the votes cast at the Annual Meeting. Additionally, the Guidelines provide that an incumbent director who fails to identify and manage risks andreceive a majority of the votes cast must tender an irrevocable offer of resignation to facilitate communication with the Board. Our internal audit department, which reportsThe Board will then consider a number of factors in determining whether to accept or reject the resignation, including the director’s contributions to the Audit Committee, facilitatesCompany and the reasons he or she did not obtain the requisite stockholder vote.
Our corporate governance structure and processes are set forth in our enterprise risk assessment and ongoing enterprise risk management processes, in coordination with our legal and compliance functions, and regularly reports on risk-related issues tokey governance documents, including the Guidelines. The Guidelines govern the operation of the Board and its committees to complement our strategic planning process. Theand guide the Board and Auditits committees in the execution of their respective responsibilities. The Governance Committee receive regular reportsreviews the Guidelines at least annually, and the Board updates fromthe Guidelines periodically in response to changing regulatory requirements, evolving practices and otherwise as circumstances warrant.
Because we believe an important aspect of achieving a strong and effective corporate governance structure is to encourage an open dialogue with our legalstockholders, we have reviewed our policies and compliance functions. The Board also considers specific risk topics and receives regular reports fromprocedures in light of the headssuggestions set forth in the Commonsense Principles. Accordingly, highlighted below are the key areas of our principal businesses and corporate functionsgovernance practices that include discussions ofwe believe align with the risks and exposures involved in their respective areas of responsibility.
The Board executes its risk oversight function both as a whole and through delegation to committees. In particular:
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| | | | | | | |
| Board Composition and Leadership | ü | | | | Our Board is led by an independent Non-Executive Chairman who is not our CEO |
| Audit Committeeü | | | Compensation Committee | Each of our director nominees, other than our CEO, is independent |
| | Our directors have complementary and diverse skills sets, backgrounds and experiences and are continually educated on our industry |
| ü | Our Board size promotes an open dialogue among directors |
| Director Elections | ü | We use a majority voting standard in uncontested director elections, and require incumbent directors who fail to receive a majority of the votes cast to tender their resignation |
| ü | Directors are elected on an annual basis |
| Board Committee Structure | ü | We have a well-developed committee structure with clearly understood responsibilities |
| ü | Each member of our standing committees is independent |
| Director Effectiveness | ü | Our Board, committees and directors conduct regular self and peer evaluations, led by our Governance Committee, to assess effectiveness and areas for improvement |
| Director Responsibilities | ü | Each of our directors has input into the setting of the Board agenda |
| ü | Each of our directors has unfettered access to management, relatedand committees have the authority to accounting and financial reporting,retain independent advisors |
| ü | Our Board frequently meets in executive session without the audit process, internal control over financial reporting and disclosure controls and procedures•
Oversees the internal audit function•
Monitors legal and compliance issues and active matters |
| ü | | •
Oversees risk management related to theOur Board focuses on significant risks and rewards associated withseeks the proper calibration of risk and reward while focusing on the longer-term interests of our compensation policies and practices•
Oversees management development and succession planning across senior positions | stockholders |
| Director Compensation | ü | | | | |
| | | | | |
| EHS Committee | | | Governance Committee | |
| •
Oversees risk management related to risks directly related to the environment, health and safety areas | | | •
Oversees risk management related to governance structure and processes and risks arising from related person transactions | We pay a substantial portion of non-employee director compensation in equity grants |
Related Person Transactions
The Governance Committee administers a written Related Person Transaction Policy that applies to any transaction or series of transactions in which we are a participant, the amount involved exceeds or may be expected to exceed $120,000 and a related person has a direct or indirect material interest. Under the policy, our General CounselChief Legal Officer determines whether a transaction meets the requirements of a related person transaction requiring review by the Governance Committee. Transactions that fall within this definition will be referred to the Governance Committee for approval, ratification or other action. Based on its consideration of all of the relevant facts and circumstances, the Governance Committee will decide whether or not to approve the transaction and will approve only those transactions that are in our best interests.interest. In addition, the Board has delegated to the Chair of the Governance Committee the authority to pre-approve or ratify any transaction with a related person in which the aggregate amount involved is expected to be less than $500,000.
Communicating with the Board
Stockholders and other interested parties may communicate with any of our directors, including our Non-Executive Chairman and the Chairs of our committees, or our independent directors as a group, on Board-related issues by writing in care of our Corporate Secretary at our principal executive office address: 1200 Abernathy Road, N.E., Suite 1200, Atlanta, Georgia 30328. Stockholders and other interested persons may also communicate with directors by sending an email message to boardofdirectors@muellerwp.com, or with the Audit Committee by sending an email message to auditcommittee@muellerwp.com. These procedures may change from time to time. Please visit our website at www.muellerwaterproducts.com for the most current means of contacting our directors.
26 MUELLER WATER PRODUCTS, INC.
Director Compensation
The Compensation Committee is responsible for reviewing and considering any revisions to director compensation. With the assistance of its independent compensation consultant, the Compensation Committee reviews director compensation and compares it to director compensation paid by other companies in the peer group described under “Compensation Discussion and Analysis — Executive Compensation Program Overview — Peer Group Benchmarking and Total Compensation.”
The Board reviews the Compensation Committee’s recommendations and determines the final structure and amounts of director compensation. The Board has determined compensation for non-employee directors should comprise a mix of cash and equity-based awards consistent with the mix and form of payment implemented by other companies in our peer group. In addition to utilizing an overall compensation structure consistent with market practice, the Board believes the interests of directors are aligned with the interests of other stockholders by linking a significant portion of director compensation to Common Stock performance. Under our stock ownership guidelines, directors are required to hold at least 50% of the Common Stock acquired through equity-based awards until they own Common Stock equal in market value to at least five times their annual retainer. See “Compensation Discussion and Analysis — Other Compensation Practices and Policies — Stock Ownership Guidelines” for more information.
Annual Retainer
Each non-employee director received an annual retainer of $55,000 for fiscal 2019. In addition, the Chairs of the Audit Committee and Compensation Committee each received $15,000, while the Chairs of the Governance Committee and EHS Committee each received $7,500. Our Non-Executive Chairman received $75,000 for serving in this capacity. The annual retainers and Chair fees are paid quarterly. The annual retainer and Committee Chair amounts have not increased since 2010.
Meeting Fees
Each non-employee director received $1,500 for each Board or committee meeting attended during fiscal 2019, except that our Non-Executive Chairman, who is an ex officio member of each standing committee of the Board, receives no Committee meeting fees. Meeting fees are paid promptly after the conclusion of each meeting. The current meeting fee amount has not increased since 2006.
Equity-Based Awards
Our Second Amended and Restated 2006 Stock Incentive Plan (the “2006 Stock Plan”) provides that, on the date of each annual meeting of stockholders, we will grant equity-based awards with an economic value determined by the Compensation Committee to each non-employee director who is re-elected to the Board and has served as a director for at least six months. In addition, the 2006 Stock Plan provides that each director will receive an initial equity-based grant on the date on which he or she commences service as a director, the economic value and terms of which will be as determined by the Compensation Committee. The number of units equivalent to the economic value of those awards is calculated by the Compensation Committee’s compensation consultant. See “Compensation Discussion and Analysis — Other Compensation Practices and Policies — Role of Compensation Consultant in Compensation Decisions.”
On January 23, 2019, each non-employee director, with the exception of Dr. Ortiz and Mr. Van Arsdell, received equity-based awards in the form of 9,625 restricted stock units (“RSUs”). On January 24, 2019, Dr. Ortiz received an initial grant of 9,544 RSUs upon her election to the Board in accordance with the 2006 Stock Plan. On July 16, 2019, Mr. Van Arsdell received an initial grant of 4,648 RSUs, which amount was prorated as of his date of election, in accordance with the 2006 Stock Plan. These RSUs will vest for directors remaining in continuous service through the first anniversary of the grant date, although the Compensation Committee may waive this minimum service requirement.
Travel Expenses
We did not engagereimburse directors for their travel and related expenses in connection with attending Board and committee meetings and related activities.
Director Compensation Summary
The following table shows fiscal 2019 compensation for our non-employee directors.
| | |
| DIRECTOR COMPENSATION TABLE |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fees Earned or Paid in Cash ($) | | | | Stock Awards ($)(2) | All Other
Compensation
($) |
Total
($) |
| Name | Annual Retainer ($)(1) | Meeting Fees
($) | Total
($) | | | | |
| Shirley C. Franklin | 55,000 | | 31,500 | | 86,500 | | | 89,994 | | — | 176,494 | |
| Thomas J. Hansen | 55,000 | | 42,000 | | 97,000 | | | 89,994 | | — | 186,994 | |
| Jerry W. Kolb | 70,000 | | 49,500 | | 119,500 | | | 89,994 | | — | 209,494 | |
| Mark J. O’Brien | 130,000 | | 13,500 | | 143,500 | | | 89,994 | | — | 233,494 | |
Christine Ortiz(3) | 37,889 | | 15,000 | | 52,889 | | | 90,000 | | — | 142,889 | |
| Bernard G. Rethore | 62,500 | | 42,000 | | 104,500 | | | 89,994 | | — | 194,494 | |
| Lydia W. Thomas | 62,500 | | 33,000 | | 95,500 | | | 89,994 | | — | 185,494 | |
Michael T. Tokarz(4) | 70,000 | | 30,000 | | 100,000 | | | 89,994 | | 32,585 | | 222,579 | |
Stephen C. Van Arsdell(3) | 11,658 | | 9,000 | | 20,658 | | | 44,993 | | — | 65,651 | |
(1)Includes fees earned as Chair of a committee or as Non-Executive Chairman.
(2)Reflects the grant date fair value of the RSUs granted during fiscal 2019 computed in accordance with the stock-based compensation accounting rules described in Note 11 of our fiscal 2019 consolidated financial statements, which are included in the 2019 Annual Report. For all non-employee directors that were retirement-eligible at the grant date, the related expense is recognized over one year from the date of grant.
(3)Dr. Ortiz's and Mr. Van Arsdell’s annual retainers and Mr. Van Arsdell’s stock awards were prorated as of the applicable date of election.
(4)Mr. Tokarz deferred the receipt of all director compensation fees earned in fiscal 2019 into 10,044 stock equivalent shares of Common Stock. “All Other Compensation” represents amounts accrued on identical terms to dividends paid on Common Stock equal to the accumulated stock equivalent share balance. See “— Deferred Compensation” for more information.
The following table shows information related to option awards and stock awards made to our non-employee directors that were outstanding at September 30, 2019.
| | | | | | | | | | | | | | |
| | Option Awards | |
| Stock Awards |
| | Number of Securities
Underlying Options (#) | |
| Number of Shares or
Units of Stock That
Have Not Vested (#) |
| | Exercisable | Unexercisable | | |
| Shirley C. Franklin | 65,796 | | — | |
| 9,625 | |
| Thomas J. Hansen | 58,999 | | — | |
| 9,625 | |
| Jerry W. Kolb | 55,084 | | — | |
| 9,625 | |
| Mark J. O’Brien | 70,178 | | — | |
| 9,625 | |
| Christine Ortiz | — | | — | |
| 9,544 | |
| Bernard G. Rethore | 33,025 | | — | |
| 9,625 | |
| Lydia W. Thomas | 70,178 | | — | |
| 9,625 | |
| Michael T. Tokarz | 70,178 | | — | |
| 9,625 | |
| Stephen C. Van Arsdell | — | | — | |
| 4,648 | |
Deferred Compensation
The Board adopted the Mueller Water Products, Inc. Directors’ Deferred Fee Plan, as amended, under which non-employee directors may elect to defer all or a portion of their directors’ fees. We make deferred payments in January of the year determined by the non-employee director pursuant to an election filed with our Corporate Secretary. The payments may be made in any transaction during fiscal 2017, and have no currently proposed transaction,calendar year not earlier than the year in which the amount involved exceeds $120,000participant has his or her 72nd birthday or the year of the participant’s termination of his or her services as a director, with the payment made in cash in one, five, ten or fifteen annual installments as determined by the participating director in his or her election form. During fiscal 2019, Mr. Tokarz was the only non-employee director who participated in this plan. Mr. Tokarz’s deferred payments are maintained in a stock equivalent account.
28 MUELLER WATER PRODUCTS, INC.
EXECUTIVE COMPENSATION
| | | | | |
| Proposal Two | |
| Advisory Resolution to Approve Executive Compensation | |
| The Board recommends a vote FOR this proposal. |
We provide our stockholders with the annual opportunity to cast an advisory vote to approve the compensation of our named executive officers. The vote on this proposal represents an additional means by which we obtain feedback from our stockholders about executive compensation. Our Compensation Committee sets executive compensation.
The overall objective of our executive compensation program is to encourage and areward the creation of sustainable, long-term stockholder value. To meet this objective, the Compensation Committee has designed compensation plans for our executive officers that target total compensation at or about the regressed 50th percentile (plus or minus 15%) of our customized peer group. A significant portion of our executives’ overall compensation is structured as incentive compensation. For fiscal 2019, incentive compensation represented approximately 75% of our current CEO’s total target compensation (excluding Other Compensation), and an average of 60% of the total target compensation (excluding Other Compensation) of the other named executive officers. We believe an emphasis on both short-term and long-term incentive compensation aligns executives’ and stockholders’ interests. Further, despite strong operating results in fiscal 2019 and year-over-year increases in net sales, operating income and net cash from operations, the performance-based cash incentive compensation only paid out at 55.7% of target, which illustrates rigorous and meaningful targets and highlights the Committee's pay-for-performance philosophy.
We encourage our stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, which discusses how our compensation policies and procedures implement our compensation philosophy. The Board and the Compensation Committee believe these policies and procedures are strongly aligned with the long-term interests of our stockholders and are effective in implementing our compensation philosophy and in achieving our strategic goals.
Accordingly, we ask for stockholder approval of the following resolution:
RESOLVED, that the stockholders of Mueller Water Products, Inc. approve, on an advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related person had ornarrative disclosure in the Company’s proxy statement for the 2020 annual meeting of stockholders.
At last year’s annual meeting of stockholders, approximately 97% of votes cast were in support of the compensation of our named executive officers. The Compensation Committee will have a direct or indirect material interest.once again consider the result of this year’s vote, as well as other communications from stockholders relating to our compensation practices, and take them into account in future determinations concerning our executive compensation program. See “Compensation Discussion and Analysis — Highlights of 2019 Executive Compensation.”
Deferred Compensation
The Board adopted the Mueller Water Products, Inc. Directors’ Deferred Fee Plan, as amended, under which non-employee directors may elect to defer all or a portion of their directors’ fees. We make deferred payments in January of the year determined by the non-employee director pursuant to an election filed with our Corporate Secretary. The payments may be made in any calendar year not earlier than the year in which the participant has his or her 72nd birthday or the year of the participant’s termination of his or her services as a director, with the payment made in cash in one, five, ten or fifteen annual installments as determined by the participating director in his or her election form. During fiscal 2019, Mr. Tokarz was the only non-employee director who participated in this plan. Mr. Tokarz’s deferred payments are maintained in a stock equivalent account.
28 MUELLER WATER PRODUCTS, INC.
EXECUTIVE COMPENSATION
| | | | | |
| Proposal Two | |
| Advisory Resolution to Approve Executive Compensation | |
| The Board recommends a vote FOR this proposal. |
We provide our stockholders with the annual opportunity to cast an advisory vote to approve the compensation of our named executive officers. The vote on this proposal represents an additional means by which we obtain feedback from our stockholders about executive compensation. Our Compensation Committee Interlockssets executive compensation.
The overall objective of our executive compensation program is to encourage and Insider Participation
During fiscal 2017, nonereward the creation of the members ofsustainable, long-term stockholder value. To meet this objective, the Compensation Committee was a formerhas designed compensation plans for our executive officers that target total compensation at or about the regressed 50th percentile (plus or minus 15%) of our customized peer group. A significant portion of our executives’ overall compensation is structured as incentive compensation. For fiscal 2019, incentive compensation represented approximately 75% of our current officer or employeeCEO’s total target compensation (excluding Other Compensation), and an average of 60% of the total target compensation (excluding Other Compensation) of the other named executive officers. We believe an emphasis on both short-term and long-term incentive compensation aligns executives’ and stockholders’ interests. Further, despite strong operating results in fiscal 2019 and year-over-year increases in net sales, operating income and net cash from operations, the performance-based cash incentive compensation only paid out at 55.7% of target, which illustrates rigorous and meaningful targets and highlights the Committee's pay-for-performance philosophy.
We encourage our stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, which discusses how our compensation policies and procedures implement our compensation philosophy. The Board and the Compensation Committee believe these policies and procedures are strongly aligned with the long-term interests of our stockholders and are effective in implementing our compensation philosophy and in achieving our strategic goals.
Accordingly, we ask for stockholder approval of the following resolution:
RESOLVED, that the stockholders of Mueller Water Products, Inc. or anyapprove, on an advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure in the Company’s proxy statement for the 2020 annual meeting of its subsidiaries or had any relationships requiring disclosure as a related person transaction. Nonestockholders.
At last year’s annual meeting of stockholders, approximately 97% of votes cast were in support of the compensation of our named executive officers serves or has served on the board of directors or compensation committee of any other entity that has or has had one or more executive officers who served as a member of the Board or its Compensation Committee during fiscal 2017.
Communicating with the Board
Stockholders and other interested parties may communicate with any of our directors, including our Lead Director and the Chairs of our committees, or our independent directors as a group, on Board-related issues by writing in care of our Corporate Secretary at our principal executive office address: 1200 Abernathy Road, N.E., Suite 1200, Atlanta, Georgia 30328. Stockholders and other interested persons may also communicate with directors by sending an email message to boardofdirectors@muellerwp.com, or with the Audit Committee by sending an email message to auditcommittee@muellerwp.com. These procedures may change from time to time. Please visit our website at www.muellerwaterproducts.comfor the most current means of contacting our directors.
DIRECTOR COMPENSATION
officers. The Compensation Committee is responsible for reviewingwill once again consider the result of this year’s vote, as well as other communications from stockholders relating to our compensation practices, and considering any revisions to director compensation. With the assistance of its independenttake them into account in future determinations concerning our executive compensation consultant, the Compensation Committee reviews director compensation and compares it to director compensation paid by other companies in the peer group described under “Compensation Discussion and Analysis — Executive Compensation Program Overview — Peer Group Benchmarking and Total Compensation.”
The Board reviews the Compensation Committee’s recommendations and determines the final structure and amounts of director compensation. The Board has determined compensation for non-employee directors should comprise a mix of cash and equity-based awards. The Board believes the interests of directors are aligned with the interests of other stockholders by linking a significant portion of director compensation to Common Stock performance. Under our stock ownership guidelines, directors are required to hold at least 50% of the Common Stock acquired through equity-based awards until they own Common Stock equal in market value to at least five times their annual retainer.program. See “Compensation Discussion and Analysis — Other Compensation Practices and Policies — Stock Ownership Guidelines” for more information.Highlights of 2019 Executive Compensation.”
Annual Retainer
Each non-employee director received an annual retainer of $55,000 for fiscal 2017. Annual retainers are paid quarterly. In addition, the Chairs of the Audit Committee and Compensation Committee each received $15,000, while the Chairs of the Governance Committee and EHS Committee each received $7,500. Our Lead Director received $50,000 for serving in this capacity.
Meeting Fees
Each non-employee director received $1,500 for each Board or committee meeting attended during fiscal 2017, except that our Lead Director, who is an ex officio member of each standing committee of the Board, receives no meeting fees. Meeting fees are paid monthly.
Equity-Based Awards
Our Amended and Restated 2006 Stock Incentive Plan (the “2006 Stock Plan”) provides that, on the date of each annual meeting of stockholders, we will grant equity-based awards with an economic value determined by the Compensation Committee to each non-employee director who is re-elected to the Board and has served as a director for at least six months. In addition, the 2006 Stock Plan provides that each director will receive an initial equity-based grant on the date on which he or she commences service as a director, the economic value and terms of which will be as determined by the Compensation Committee. The number of units equivalent to the economic value of those awards is calculated by the Compensation Committee’s compensation consultant. See “Compensation Discussion and Analysis — Other Compensation Practices and Policies — Role of Compensation Consultant in Compensation Decisions”.
On January 25, 2017, each non-employee director received equity-based awards in the form of 6,612 restricted stock units (“RSUs”). The outstanding RSUs vest in equal installments on the first, second and third anniversaries of the grant date.
Under our 2006 Stock Plan, once a participant becomes “retirement-eligible,” all outstanding and unvested equity-based awards automatically vest upon retirement. Each of our non-employee directors is “retirement eligible”. Commencing in fiscal 2014, all equity-based awards participants must remain in continuous service from the grant date through at least the first anniversary thereof to receive accelerated vesting upon retirement from the Board, although the Compensation Committee may waive this minimum service requirement.
Mr. Leonard retired from the Board at the 2017 Annual Meeting. At a January 2017 Board meeting, the Board awarded to Mr. Leonard an equity-based grant equal to 6,612 shares of Common Stock in recognition of his many years of service to the Board and waived the minimum service requirement in connection with the award.
Travel Expenses
We reimburse directors for their travel and related expenses in connection with attending Board and committee meetings and related activities.
Director Compensation Summary
The following table shows fiscal 2017 compensation for our non-employee directors.| Fiscal 2017 Director Compensation Table |
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| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(2) | All Other Compensation ($) | Total ($) |
Annual Retainer ($)(1) | Meeting Fees ($) | Total ($) |
| Shirley C. Franklin | 55,000 |
| 31,500 |
| 86,500 |
| 89,989 |
| — |
| 176,489 |
|
| Thomas J. Hansen | 55,000 |
| 39,000 |
| 94,000 |
| 89,989 |
| — |
| 183,989 |
|
| Jerry W. Kolb | 70,000 |
| 54,000 |
| 124,000 |
| 89,989 |
| — |
| 213,989 |
|
Joseph B. Leonard(3) | 13,750 |
| 21,000 |
| 34,750 |
| 89,989 |
| — |
| 124,739 |
|
| Mark J. O’Brien | 105,000 |
| 18,000 |
| 123,000 |
| 89,989 |
| — |
| 212,989 |
|
| Bernard G. Rethore | 62,500 |
| 51,000 |
| 113,500 |
| 89,989 |
| — |
| 203,489 |
|
| Lydia W. Thomas | 62,500 |
| 34,500 |
| 97,000 |
| 89,989 |
| — |
| 186,989 |
|
Michael T. Tokarz (4) | 70,000 |
| 42,000 |
| 112,000 |
| 89,989 |
| 20,674 |
| 222,663 |
|
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(1) | Includes fees earned as chair of a committee or as Lead Director. |
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(2) | Reflects the grant date fair value of the RSUs granted during fiscal 2017 computed in accordance with the stock-based compensation accounting rules described in Note 11 of our fiscal 2017 consolidated financial statements, which are included in the 2017 Annual Report. Since all non-employee directors were retirement-eligible at the grant date, expense is recognized over one year from the date of grant. |
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(3) | Mr. Leonard retired from the Board at the 2017 Annual Meeting. In connection with Mr. Leonard’s retirement, all of his outstanding stock awards vested and became immediately exercisable. |
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(4) | Mr. Tokarz deferred the receipt of all director compensation fees earned in fiscal 2017 into 8,992 stock equivalent shares of Common Stock. “All Other Compensation” represents amounts accrued on identical terms to dividends paid on Common Stock equal to the accumulated stock equivalent share balance. See “— Deferred Compensation” for more information. |
The following table shows information related to option awards and stock awards made to our non-employee directors that were outstanding at September 30, 2017.
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| | | Option Awards | Stock Awards |
| | Name(1) | Number of Securities Underlying Options (#) | Number of Shares or Units of Stock That Have Not Vested (#) |
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| | Exercisable | Unexercisable |
| | Franklin | | 65,796 |
| | — |
| | 6,612 |
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| | Hansen | | 58,999 |
| | — |
| | 6,612 |
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| | Thomas | | 79,724 |
| | — |
| | 6,612 |
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| | Kolb | | 55,084 |
| | — |
| | 6,612 |
| |
| | O’Brien | | 89,425 |
| | — |
| | 6,612 |
| |
| | Rethore | | 33,025 |
| | — |
| | 6,612 |
| |
| | Tokarz | | 89,425 |
| | — |
| | 6,612 |
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2019 PROXY STATEMENT 29
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(1) | Each director is “retirement-eligible” under the 2006 Stock Plan. Commencing in fiscal 2014, all equity-based awards require a grantee who is or becomes “retirement-eligible” prior to an initial vesting date to remain in continuous service from the grant date through at least the first anniversary thereof to receive accelerated vesting upon retirement. For purposes of this table, all stock options and RSUs outstanding are deemed vested. |
Deferred Compensation
The Board adopted the Mueller Water Products, Inc. Directors’ Deferred Fee Plan, as amended, under which non-employee directors may elect to defer all or a portion of their directors’ fees. We make deferred payments in January of the year determined by the non-employee director pursuant to an election filed with our Corporate Secretary. The payments may be made in any calendar year not earlier than the year in which the participant has his or her 72nd72nd birthday or the year of the participant’s termination of his or her services as a director, with the payment made in cash in one, five, ten or fifteen annual installments as determined by the participating director in his or her election form. During fiscal 2017,2019, Mr. Tokarz was the only non-employee director who participated in this plan. Mr. Tokarz’s deferred payments are maintained in a stock equivalent account.
28 MUELLER WATER PRODUCTS, INC.
EXECUTIVE COMPENSATION
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| Proposal Two | |
| Advisory Resolution to Approve Executive Compensation | |
| The Board recommends a vote FOR this proposal. |
We provide our stockholders with the annual opportunity to cast an advisory vote to approve the compensation of our named executive officers. The vote on this proposal represents an additional means by which we obtain feedback from our stockholders about executive compensation. Our Compensation Committee sets executive compensation.
The overall objective of our executive compensation program is to encourage and reward the creation of sustainable, long-term stockholder value. To meet this objective, the Compensation Committee has designed compensation plans for our executive officers that target total compensation at or about the regressed 50th percentile (plus or minus 15%) of our customized peer group. A significant portion of our executives’ overall compensation is structured as incentive compensation. For fiscal 2019, incentive compensation represented approximately 75% of our current CEO’s total target compensation (excluding Other Compensation), and an average of 60% of the total target compensation (excluding Other Compensation) of the other named executive officers. We believe an emphasis on both short-term and long-term incentive compensation aligns executives’ and stockholders’ interests. Further, despite strong operating results in fiscal 2019 and year-over-year increases in net sales, operating income and net cash from operations, the performance-based cash incentive compensation only paid out at 55.7% of target, which illustrates rigorous and meaningful targets and highlights the Committee's pay-for-performance philosophy.
We encourage our stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, which discusses how our compensation policies and procedures implement our compensation philosophy. The Board and the Compensation Committee believe these policies and procedures are strongly aligned with the long-term interests of our stockholders and are effective in implementing our compensation philosophy and in achieving our strategic goals.
Accordingly, we ask for stockholder approval of the following resolution:
RESOLVED, that the stockholders of Mueller Water Products, Inc. approve, on an advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure in the Company’s proxy statement for the 2020 annual meeting of stockholders.
At last year’s annual meeting of stockholders, approximately 97% of votes cast were in support of the compensation of our named executive officers. The Compensation Committee will once again consider the result of this year’s vote, as well as other communications from stockholders relating to our compensation practices, and take them into account in future determinations concerning our executive compensation program. See “Compensation Discussion and Analysis — Highlights of 2019 Executive Compensation.”
EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee Interlocks and Insider Participation
During fiscal 2019, none of the members of the Compensation Committee (comprised of Shirley C. Franklin, Jerry W. Kolb and Michael T. Tokarz) was a former or current officer or employee of Mueller Water Products, Inc. or any of its subsidiaries or had any relationships requiring disclosure as a related person transaction. None of our executive officers serves or has served on the board of directors or compensation committee of any other entity that has or has had one or more executive officers who served as a member of the Board or its Compensation Committee during fiscal 2019.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis is intended to provide our stockholders with information about our fiscal 20172019 compensation program for the following executive officers (collectively, “named executive officers” or “NEOs”):
Gregory E. Hyland, Executive Chairman and former President and Chief Executive Officer
Scott Hall, President and Chief Executive Officer
Evan L. Hart, Senior Vice President and Chief Financial Officer
Keith L. Belknap, Executive Vice President, Business Development, General Counsel and Chief Compliance Officer
Gregory E. Rogowski, Executive Vice President, Sales and Marketing
Marietta Edmunds Zakas, Executive Vice President, Strategy, Corporate Development and Communications
Fiscal 2017 Events
On January 6, 2017, we sold our former Anvil business. Neither the divestiture of Anvil nor its results of operations had any impact on the compensation of our NEOs for fiscal 2017. Accordingly, Anvil’s results of operations and metrics have been excluded from all financial and performance information related to compensation contained in this proxy statement.
Effective January 23, 2017, our Board appointed Scott Hall as our President and Chief Executive Officer. Mr. Hall joined us from Textron, Inc. where he most recently served as President and Chief Executive Officer of its Industrial segment. Mr. Hall succeeded Mr. Hyland, who assumed the role of Executive Chairman.
On February 15, 2017, we acquired Singer Valve, a manufacturer of automatic control valves. Neither the acquisition of Singer Valve nor its results of operations had any impact on the compensation of our NEOs for fiscal 2017. Accordingly, Singer Valve’s results of operations and metrics have been excluded from all financial and performance information related to compensation contained in this proxy statement.
On September 7, 2017, we announced a strategic reorganization and restructuring plan designed to accelerate our new product innovation and revenue growth. As a result of the reorganization, we will continue to report our financial performance based on two reportable segments. However, the names of these two segments have changed: Our Infrastructure segment was previously reported as “Mueller Co.” and our Technologies segment was previously reported as “Mueller Technologies”. The components of these two segments did not change.
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Highlights of 2017 Performance |
In fiscal 2017, we improved our operating performanceScott Hall
President and executed initiatives to return value to our stockholders.Chief Executive Officer | Marietta Edmunds Zakas
Executive Vice President and Chief Financial Officer
| Steven S. Heinrichs Executive Vice President, Chief Legal and Compliance Officer and Secretary | Gregory S. Rogowski Executive Vice President, Business Development | William Cofield Senior Vice President, Operations and Supply Chain |
Notable Achievements in Fiscal 2019
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| We acquired Krausz Industries, a leader in pipe repair couplings, grips and clamps, to expand our product portfolio and geographic footprint. |
Strong Operating Results | We initiated plans to build a new state-of-the-art foundry in Decatur, Illinois. |
| We announced construction of a large casting foundry in Chattanooga, Tennessee to broaden our product lines, bring more jobs to Tennessee and increase our overall efficiency and capacity. |
| We established an innovation and technology center of excellence in Atlanta, Georgia to support our expansion into intelligent water infrastructure. |
| We implemented a "double trigger" with respect to equity award vesting upon a change-in-control. |
Highlights of Fiscal 2019 Performance
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| Focused on Operational Efficiencies and Increased Stockholder Long-Term Value | | |
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We increasedgenerated net sales 3.2% over the prior year to $826.0 million. Ourof $968.0 million, operating income of $124.3 million (with adjusted operating income of $145.0 million), net cash from operations of $92.5 million and net income in fiscal 2017 were $100.7 million and $123.3 million, respectively.Adjusted operatingper diluted share of $0.40 (with adjusted net income from continuing operations improved 4.5% to $121.9 million, from $116.7 million in fiscal 2016. Adjusted income from continuing operations improved 17.1% to $71.2, million from $60.8 million in the prior year.per diluted share of $0.61). | | | |
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| Increased Dividend | | Increased dividend
Repurchased Shares |
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We increased our quarterly dividend per share by 5% to $0.04$0.0525 from $0.03. We paid $0.05 and$24.0 million of returned $32 million to our stockholders through dividends in fiscal 2017.2019.
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| | | Repurchased Shares
| We repurchased $55.0$10 million of our outstanding Common Stock during fiscal 2017.
2019. | |
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Highlights of 20172019 Performance Related to Executive Compensation
On January 6, 2017, we sold our former Anvil business. On February 15, 2017, we acquired Singer Valve. The results of operations of Anvil and Singer Valve had no impact on the compensation of our named executives officers for fiscal 2017. Accordingly, Anvil’s and Singer Valve’s results of operations and metrics have been excluded from all financial or performance information related to compensation contained in this proxy statement.
The Compensation Committee used several financial and performance elements (including those set forth below) to assess and determine incentive plan compensation earned during fiscal 2017. 2019. See Exhibit A for a reconciliation of the following non-GAAP financial resultsmeasures used in determining executive compensation to GAAP financial results.
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| Company Results for Performance Evaluation Basis | | | | | |
| Adjusted Net Sales(1) | Adjusted Operating Income(2) | Adjusted Net Cash from Operations(3) |
| Return on Net Assets(4) (%) |
| ($ in millions) | | |
| |
| 2019 | 930.9 | | 139.1 | | 127.9 | |
| 32.7 | |
(1)Defined for this purpose as net sales to exclude the effects of the Krausz acquisition.
(2)Defined for this purpose as operating income adjusted to exclude significant unusual charges and the effects of the Krausz acquisition. |
| | | | | | | |
| | Adjusted Net Sales | Adjusted Operating Income from Continuing Operations(1) | Adjusted Income from Continuing Operations(2) | Return on Net Assets(3) |
| |
| | ($ in millions) | ($ in millions) | ($ in millions) | (%) |
| 2017 | 815.7 |
| 121.3 |
| 68.5 |
| 34.4 |
| 2016 | 800.6 |
| 116.7 |
| 57.3 |
| 34.0 |
| |
(1) | Defined for this purpose as operating income adjusted to exclude pension settlement expenses, expenses related to exploring potential acquisitions and divestitures and other charges. |
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(2) | Defined for this purpose as income from continuing operations calculated using our actual effective income tax rate in 2017 and a predetermined income tax rate in 2016 and to exclude other charges, expenses related to exploring potential acquisitions and divestitures, results of operations of new or divested businesses and pension settlement expenses. |
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(3) | Defined for this purpose as the quotient obtained by dividing income tax-effected adjusted operating income from continuing operations plus amortization by the quarterly average of working capital and fixed assets, excluding balances related to acquired or divested businesses. Working capital excludes cash and debt. Fixed assets is property, plant and equipment. |
(4)Defined for this purpose as the after-tax quotient obtained by dividing performance evaluation basis adjusted operating income plus amortization of capitalized software and intangible assets by the quarterly average of the sum of working capital, excluding cash, debt and accrued interest and other items plus property, plant and equipment. Highlights of 20172019 Executive Compensation
We design our executive officer compensation programs to target total compensation at or about the regressed 50th percentile (plus or minus 15%) for comparable executive positions at companies in our customized peer group. The principal elements of our compensation program for executives are base salary, annual performance-based cash bonus, long-term incentive equity compensation and broad-based benefit programs.
We consider stockholder feedback on executive compensation. At our 2016 and 2017 annual meetings of stockholders, approximately 98% of the votes cast supported the advisory vote on executive compensation. We carefully consider feedback from our stockholders regarding executive compensation.
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◦ | Based on strong stockholder support expressed forWe tie our executiveexecutives' compensation programs, the Compensation Committee applied a consistent pay-for-performance philosophy in structuring executive compensation for fiscal 2017.to Company performance. |
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◦ | Stockholders are invited to express their views or concerns on executiveFor fiscal 2019, 55% of our CEO’s total target compensation, directly to the Chairand an average of 45% of the Compensation Committee in the manner described under “Corporate Governance — Communicating with the Board.”total target compensation of our other NEOs, could only be earned by meeting performance goals. | | PERFORMANCE-BASED TOTAL TARGET COMPENSATION(1) | |
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(1)Excludes Other Compensation. See "Executive Compensation — Summary Compensation Table" for total compensation as earned.
We •structureOur NEOs’ compensation was negatively affected by Company performance in relation to targets set for fiscal 2019.
•Annual cash bonuses earned by our NEOs (excluding Mr. Hall) for fiscal 2019 ranged from $81,601 to $195,117 compared with $338,173 to $450,401 (excluding Messrs. Heinrichs and Cofield due to their tenure or status with the Company) last year.
•Long-term, performance-based compensation to paywas paid or credited at 64.2% of target for performance. fiscal 2019 because Company performance on the “return on net assets” financial measure was below the target level.
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| We structure performance-based compensation to pay for performance. |
We set clear and measurable financial goals for Company and segment performance. In evaluating individual performance, we assess progress toward strategic priorities.
Performance-based compensation earned by our named executive officers. For fiscal 2017, 42% of our CEO’s total target compensation, and an average of 45% of the total target compensation of our other NEOs (excluding Mr. Hyland), could only be earned by meeting performance goals.EXECUTIVE COMPENSATION
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◦ | Our NEOs’ compensation was both positively and negatively affected by Company and segment performance in relation to targets set for fiscal 2017.We consider stockholder feedback on executive compensation. |
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◦At our 2018 and 2019 annual meetings of stockholders, approximately 94% and 97%, respectively, of the votes cast supported the advisory vote on executive compensation. We carefully consider feedback from our stockholders regarding executive compensation. | Annual cash bonuses earned by our continuing NEOs ranged from 74% to 121% of target (compared with 101% to 129% of target last year). | “SAY-ON-PAY” SUPPORT | |
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•Based on strong stockholder support expressed for our executive compensation programs, the Compensation Committee applied a consistent pay-for-performance philosophy in structuring executive compensation for fiscal 2019.
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◦ | Long-term, performance-based compensation was paid or credited at 100% of targetWe utilize best practices for fiscal 2017 because Company performance on the “return on net assets” financial measure was at the target level.executive compensation. |
We continue to maintain best practices for executive compensation.
Table of Contents | | | | | | | | | | | | | | |
| ü | WE DO |
| û | WE DON’T |
| ü | Use incentives to substantially link NEO pay to company performance |
| û | Re-price or exchange equity-based awards |
| ü | Require executives and directors to maintain significant stock ownership levels | | û | Permit hedging or pledging of Common Stock by directors or executives |
| ü | Maintain a compensation clawback policy | | û | Pay dividends on unvested equity-based incentives |
| ü | Require a double trigger for equity award vesting upon a change-in-control | | û | Provide excise tax gross-up benefits |
Executive Compensation Program Overview
Guiding Principles
The Compensation Committee has identified the following guiding principles in overseeing the compensation program for our executives:
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Competitiveness Compensation programs should be designed to target at the 50thregressed 50th percentile, plus or minus 15%, of total compensation for comparable executive positions at a customized peer group. | | Pay for Performance Where compensation for an executive is tied to the achievement of financial and strategic goals, actual results that exceed target levels should provide above-target payouts, and results that do not exceed threshold levels should not provide payouts. | |
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Responsibility A significant portion of an executive’s overall compensation should be tied to the achievement of financial performance goals. The portion of an executive’s target total compensation that is incentive based should increase as an executive’s responsibilities increase. | | Stockholder Alignment Executives’ interests are more directly aligned with stockholders’ interests when compensation programs: •Emphasize both short- and long-term financial performanceperformance; •Are significantly impacted by the value of Common StockStock; and •Require meaningful Common Stock ownership. | |
32 MUELLER WATER PRODUCTS, INC.
Peer Group Benchmarking and Total Compensation
Each year, the Compensation Committee’s compensation consultant collects peer group compensation data and prepares an executive benchmarking study using a market regression analysis to size-adjust the market data for our net sales size as a whole and for each separate business unit.whole. The Compensation Committee, with input from its independent compensation consultant, reviews the prior year peer group. This review focuses on companies that have a primary manufacturing component to their businesses, have similar organizational structures and are publicly traded or otherwise file financial statements with the SEC. The 20-companyWe believe the resulting peer group approved byprovides a valid and appropriate comparison for the Company’s executive compensation program and governance practices. For fiscal 2019, the Compensation Committee did not make any changes to the previous year’s group. The peer group for fiscal 2017 (the “Peer2019 (“Peer Group”) isconsisted of the companies listed below and is unchanged from the fiscal 2016 peer group.below.
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Fiscal 20172019 Peer Group |
Ametek, Inc. | IDEX Corporation | | The Compensation Committee targets total compensation at the regressed 50th percentile of the Peer Group, plus or minus 15% |
| Armstrong World Industries, Inc. | Lennox InternationalHillenbrand, Inc. | |
| Badger Meter, Inc. | Mueller Industries, Inc.IDEX Corporation | |
Briggs & Stratton CorporationChart Industries | Otter Tail CorporationItron, Inc. | |
| Circor International Inc. | Quanex Building Products CorporationMueller Industries, Inc. | |
| Crane Co. | Roper Technologies, Inc. |
Curtiss-WrightQuanex Building Products Corporation | Tennant Co. |
Donaldson Company, Inc. | Valmont Industries, Inc. |
| EnPro Industries, Inc. | Watts Water Technologies, Inc.Rexnord Corp. | |
| Franklin Electric Co. | SPX Flow | |
| Graco Inc. | WorthingtonValmont Industries, Inc. | |
| Harsco Corp. | Watts Water Technologies, Inc. | |
The Compensation Committee regularly reviews the target total compensation of each executive and compares it to the total compensation for comparable executive positions in the Peer Group. The Compensation Committee targets total compensation at the regressed 50th50th percentile of the Peer Group, plus or minus 15% (“targeted 50th50th percentile range”), subject to individual adjustments based on experience, length of service, individual performance and other factors deemed appropriate by the Compensation Committee.
Compensation Elements
The following table lists our primary elements of compensation. Each element is targeted at or about the 50thregressed 50th percentile for comparable positions in the Peer Group.
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| Pay Element | Salary | | | Bonus | | | | | | RSUs | | | | | | PRSUs | | |
| Who Receives |
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| All NEOs | | | |
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Who Receives | All NEOs ----------------------------------------------------------------------------------------------------------------------------------------> |
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| When Granted | Generally reviewed every 12 months | Annually | | Annually | | | | | | Annually |
| | | | | Annually | | |
| Form of Delivery |
| | Cash ----------------------------------------------------------> | Equity ---------------------------------------------------------> |
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| Type of Performance |
| Short-term emphasis -------------------------------------> | | | |
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| | | Long-term emphasis --------------------------------------> | | | |
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| Performance Period | Ongoing | | | 1 year | | | | | | Generally vest annually over 3 years | Vests | | | | | Vest at the end of 3-year award cycles |
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How Payout
Determined | Predominantly tied to Peer Group data, with an element of Compensation Committee discretion | | | Predominantly formulaic (based on performance against goals), with an element of Compensation Committee discretion | | | | | | Completion of required service period through each vesting date | | | | | | Formulaic (based on performance against goals); Compensation Committee verifies results for specific performance periods | | |
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Most Recent Performance
Measures | __— | | | Mix of 90% financial results / 10% EHS-related operational goals | | | | | | Value of delivered shares based on stock price on vesting dates | Improvement in return on net assets | | | | | RONA achievement | | |
Salary
The Compensation Committee regularly compares the salary of each executive to the regressed 50th50th percentile of comparable executives in the Peer Group and uses that benchmark as a guide. Salaries for the NEOs are adjusted, as appropriate, annually on February 1. In February 2017, 1, 2019. The Compensation Committee approved the following salaries for our NEOs in fiscal 2019.
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| Name | Annual Salary Rate at
September 30, 2019
($) | Annual Salary Rate at
September 30, 2018
($) | Salary Increase (%) | |
| Scott Hall | 795,675 | | 772,500 | | 3.0 | |
| Marietta Edmunds Zakas | 414,000 | | 400,000 | | 3.5 | |
| Steven S. Heinrichs | 422,500 | | 415,000 | | 1.8 | (1) |
| Gregory S. Rogowski | 470,900 | | 459,400 | | 2.5 | |
| William Cofield | 297,000 | | 285,000 | | 4.2 | |
(1)Mr. Hart received an annualHeinrichs was hired on August 8, 2018, and his salary increase was prorated commensurate with time of 3.1%; Mr. Belknap received a salary increase of 3.0%; Mr. Rogowski received a salary increase of 3.0%; and Ms. Zakas received a salary increase of 4.4%. Ms. Zakas also received payments of $5,000 per month for assuming interim human resources responsibilities.service. |
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| Name | Annual Salary Rate at September 30, 2017 ($) | Annual Salary Rate at September 30, 2016 ($) |
| Gregory E. Hyland | 1,000,000 | | 900,000 | |
| Scott Hall | 750,000 | | N/A | |
| Evan L. Hart | 418,000 | | 405,300 | |
| Keith L. Belknap | 443,500 | | 430,500 | |
| Gregory E. Rogowski | 446,000 | | 433,000 | |
| Marietta Edmunds Zakas | 357,000 | | 341,900 | |
Annual Cash Incentive Awards
The annual cash incentive plan rewards our named executive officers for achieving key financial metrics, which drive our operating results and enhance stockholder value. The Compensation Committee targets annual cash incentive compensation for each executive at the regressed 50th50th percentile of comparable executives in the Peer Group. For fiscal 2017, the total target opportunity for each NEO was within the targeted 50th percentile range of the Peer Group. Based on actual achieved performance against performance goals, each NEO may earn between 0% and 200% of his or her annual cash target opportunity. For fiscal 2017, each NEO could earn an annual cash incentive award based on achievement against2019, the Compensation Committee selected two types of performance metrics: (i) financial performance goals (weighted 90%) and (ii) EHS-related operational goalsperformance metrics (weighted 10%). ForThe financial performance goals the Compensation Committee determined numeric goals targeting percentage improvements over the prior year’s results. All financial performance and EHS-related operational goals were set with minimum (or threshold), target and maximum objectives for each goal.
Fiscal 2017 Financial and Operational Goals and Results
The Compensation Committee selected financial performance goals for corporate executives based on adjusted income from continuing operations. The Compensation Committee selected this metricrelated to encourage focus on delivering income from continuing operations.
The Compensation Committee selected financial performance goals for Mr. Rogowski based on the Infrastructure segment’s adjusted operating income, (defined as operating income, adjusted to exclude certain effects of results of operation’s of newly acquired businesses, pension settlement expenses and other charges), the Infrastructure segment’s adjusted net sales (adjusted to exclude Singer Valve)cash from operations and adjusted income from continuing operations. The Compensation Committee selected a segment-specific financial performance goal for Mr. Belknap of improvement in adjusted operating income of Technologies and adjusted income from continuing operations.net sales. The Compensation Committee selected these performance goals primarilyfinancial metrics to encourage our NEOs to focus on increasing adjusted operating income.
generating income from continuing operations and enhancing long-term stockholder value. The Compensation Committee established operational safety and environmental (“EHS”) objectives applicable to each NEO that wereEHS-related performance metric was tied to reductions in total recordable incidence rates and key performance indicators for sustainability and specific activities identified as leading indicators. The Compensation Committee selected these metrics because they promote, drive and support the Company’s EHS initiatives and performance. All financial performance goals were set with minimum (or threshold), target and maximum objectives for Messrs. Hyland, Halleach goal as described in the “Performance Targets and HartResults” table below.
| | |
| PERFORMANCE TARGETS AND RESULTS |
| | | | | | | | | | | | | | | | | | | | | | | |
| Weight (% of Target Bonus) | Results Required to Achieve Bonus
($ in millions, except for percentages) | | | Actual 2019 Payout Factor (% of Target Bonus) unweighted | | Weighted Aggregate Actual % of Target 55.7% |
| Metric | | Threshold (50%) | Target (100%) | Maximum (200%) | | | |
| Adjusted Operating Income | 45% | | | | | 83.2% | |
| |
| Adjusted Cash Flow from Operations | 25% | | | | | 0.0% |
| |
| Adjusted Net Sales | 20% | | | | | 66.3% | |
| |
| EHS | 10% | |
| | | 50.0% | |
| |
34 MUELLER WATER PRODUCTS, INC.
FISCAL 2019 ANNUAL CASH INCENTIVE AWARDS
Based on actual performance against the performance goals as set forth above, each NEO earned 55.7% of his or her annual cash target opportunity for fiscal 2019. The table below shows each NEO’s annual cash target opportunity and Ms. Zakas were based on company-wide performance. The EHS objectives for Messrs. Rogowski and Belknap were based on Infrastructure and Technologies performance, respectively. The Compensation Committee used adjusted income from continuing operations to determine the availability of a pool from which to pay the operational EHS objectives portionamount of the incentive award to Messrs. Hyland, Hall, Rogowski and Belknap.
The following table shows the fiscal 2017 performance targets and actual results applicable to each NEO.
| Performance Targets and Results |
| | | | | | | | | | | |
| | | | Results Required to Achieve Bonus ($ in millions, except for percentages) | 2017
Actual
Results
($ in millions) | Actual 2017 Payout Factor (% of Target Bonus) unweighted |
| | | Weight (% of Target Bonus) |
| Name | Metric | Threshold (0%) | Target (100%) | Maximum (200%) |
| Gregory E. Hyland | Adjusted Income from Continuing Operations | 90 | 52.7 |
| 65.8 |
| 79.0 |
| 68.5 |
| 120.4 |
| | EHS | 10 | — |
| — |
| — |
| — |
| 128.3 |
| Scott Hall | Adjusted Income from Continuing Operations | 90 | 52.7 |
| 65.8 |
| 79.0 |
| 68.5 |
| 120.4 |
| | EHS | 10 | — |
| — |
| — |
| — |
| 128.3 |
| Evan L. Hart | Adjusted Income from Continuing Operations | 90 | 52.7 |
| 65.8 |
| 79.0 |
| 68.5 |
| 120.4 |
| | EHS | 10 | — |
| — |
| — |
| — |
| 128.3 |
| Keith L. Belknap | Adjusted Income from Continuing Operations | 55 | 52.7 |
| 65.8 |
| 79.0 |
| 68.5 |
| 120.4 |
| Technologies Adjusted Operating Income (Loss) | 35 | (5.0 | ) | 0 |
| 5.0 |
| (9.7 | ) | 0 |
| | EHS | 10 | — |
| — |
| — |
| — |
| 75.0 |
| Gregory S. Rogowski | Infrastructure Adjusted Operating Income | 40 | 138.4 |
| 173.0 |
| 207.6 |
| 166.2 |
| 80.2 |
Infrastructure Adjusted Net Sales | 25 | 715.7 |
| 753.0 |
| 790.6 |
| 729.6 |
| 37.1 |
| Adjusted Income from Continuing Operations | 25 | 52.7 |
| 65.8 |
| 79.0 |
| 68.5 |
| 120.4 |
| | EHS | 10 | — |
| — |
| — |
| — |
| 137.0 |
| Marietta Edmunds Zakas | Adjusted Income from Continuing Operations | 90 | 52.7 |
| 65.8 |
| 79.0 |
| 68.5 |
| 120.4 |
| | EHS | 10 | — |
| — |
| — |
| — |
| 128.3 |
Fiscal 2017 Annual Cash Incentive Awards
Fiscal 2017 target and actual annual cash bonuses paid to each NEO are set forth in the following table:NEO.
| | | | | | | | | | | | | | | | | |
| At Target Performance | |
| At Actual Performance | |
| Name | % of Salary | Amount ($) | | % of Target | Amount ($) |
| Scott Hall | 100 | % | 787,950 | |
| 55.7 | % | 438,889 |
| Marietta Edmunds Zakas | 70 | % | 286,533 | |
| 55.7 | % | 159,599 |
| Steven S. Heinrichs | 60 | % | 252,000 | |
| 55.7 | % | 140,364 |
| Gregory S. Rogowski | 75 | % | 350,300 | |
| 55.7 | % | 195,117 |
| William Cofield | 50 | % | 146,500 | |
| 55.7 | % | 81,601 |
|
| | | | | | |
| Name | At Target Performance | At Actual Performance |
| % of Salary | Amount ($) | % of Target | Amount ($) |
Gregory E. Hyland(1) | 100 | 301,736 |
| 121.2 | 365,674 |
|
Scott Hall(1) | 100 | 750,000 |
| 121.2 | 908,925 |
|
| Evan L. Hart | 75 | 310,325 |
| 121.2 | 376,083 |
|
| Keith L. Belknap | 70 | 307,417 |
| 73.7 | 226,627 |
|
| Gregory E. Rogowski | 75 | 331,250 |
| 85.2 | 282,075 |
|
| Marietta Edmunds Zakas | 60 | 211,180 |
| 121.2 | 255,929 |
|
| |
(1) | Mr. Hyland’s 2017 bonus was based on his salary in effect, and performance achieved, during the period in which he served as President and Chief Executive Officer (from October 2016 through January 2017). Mr. Hall’s annual bonus for fiscal 2017 was not pro rated. |
Long-Term Equity-Based Compensation
For fiscal 2017, ourThe long-term incentive program included grantsaligns the interest of our NEOs with those of our stockholders and awards our NEOs for achieving key metrics. This program drives operating results, enhances stockholder value and helps retain our NEOs.
For fiscal 2019, the Compensation Committee set each NEO’s target long-term compensation value at the regressed 50th percentile (plus or minus 15%) of comparable executives in the Peer Group. This target value was allocated 70% in the form of performance-based restricted stock units (“PRSUs”) and time-vested RSUs. The30% in the form of time-based restricted stock units (“RSUs”). For fiscal 2019, the Compensation Committee targets long-term compensation value formore heavily weighted performance-based units than in prior years to increase the overall proportion of each NEO atNEO’s performance-based compensation.
PERFORMANCE-BASED RESTRICTED STOCK UNITS
The following are the regressed 50th percentile of comparable executives in the Peer Group. For fiscal 2017, target long-term compensation value for each NEO was within the 50th percentile target rangekey terms of the Peer Group.PRSUs awarded to our NEOs in fiscal 2019:
Performance-Based Restricted Stock Units
For fiscal 2017, 50%•70% of each NEO’s target long-term incentive compensation value was awarded in the form of PRSUs. The key terms of the PRSUs are as follows:
Each PRSU award reflects a target number of shares (based onPRSUs (at target) awarded in fiscal 2019 was equal to the fair marketcompensation value divided by the share price of our Common Stock on the award date) that may be issued to the award recipient at the enddate of a three-year award cycle based on the achievement of performance targets.award.
•The PRSUs are divided into three equal tranches and each tranche is earned over a one-year performance period based on the level of achievement against the applicable annual performance target.
•The number of shares of our Common Stock earned at the conclusion of each one-year performance period may range from zero to two times the number of PRSUs in the applicable tranche.
•Each performance period target is established by the Compensation Committee on an annual basis coinciding with our fiscal year.
•At the end of each fiscal year, the Compensation Committee confirms performance against the applicable performance target, and PRSUs representing the level of achievement during that performance period are “banked” for potential payout following the end of the three-year award cycle.
Earned •PRSUs are settled in shares of Common Stock.
•To receive earned shares of Common Stock, the NEO must be employed through the last day of the three-year award cycle.
•The actual number of shares of Common Stock a participant may receive after the applicable three-year award cycle ranges from zero to two times the target number of shares,PRSUs, depending solely on the level of achievement during each performance period within the award cycle.
•PRSUs do not convey voting rights or earn dividends.
Timeline for PRSU Grants |
| | | | | |
Grant | Fiscal 2015 | Fiscal 2016 | Fiscal 2017 | Fiscal 2018 | FiscalPERFORMANCE MEASURE AND RESULT FOR FISCAL 2019 |
Fiscal 2015 | Performance Period | Performance Period | Performance Period | | |
Fiscal 2016 | | Performance Period | Performance Period | Performance Period | |
Fiscal 2017 | | | Performance Period | Performance Period | Performance Period |
Performance Measure and Result for Fiscal 2017
The applicable performance target for the fiscal 20172019 performance period for PRSU awards made in fiscal 2015,2017, fiscal 20162018 and fiscal 20172019 was based on the percentage year-over-year improvement in return on net assets or “RONA.” For these purposes, the term “RONA” has the meaning described in footnote 4 to the table under “— Highlights of 20172019 Performance Related to Executive Compensation”.Compensation.” The Compensation Committee determined the RONA target using benchmark data from the Peer Group and assistance from the Company’s independent compensation consultant. For fiscal 2019, the Compensation Committee
established the RONA target at an absolute percentage on an after-tax basis, whereas in the prior year, the RONA target was based on a pre-tax basis due to uncertainty arising from changes in tax legislation for fiscal 2018. For fiscal 2019, the performance necessary to earn a100% of target payout required a 1.16% year-over-year improvement in RONA of 37.0%, and the performance necessary to earn athe maximum 200% of target payout required RONA of at least an 8.00% year-over-year improvement in RONA.44.0%. Actual RONA performance for fiscal 20172019 was 34.41%, compared to RONA of 34.01% for fiscal 2016, a 1.16% improvement. Accordingly,32.7%. Therefore, the recipients of PRSU awards were each credited with 100.0%2019 performance period PRSUs will settle at 64.2% of the awards attributable to the fiscal 2017 performance period.awards. See “Executive Compensation — Grants of Plan-Based Awards Table”.Table.”
| | |
| PRSU PERFORMANCE MEASURE AND RESULT FOR FISCAL 2019 |
|
PRSU Awards Issued
AWARD ISSUANCES
Common Stock to be issued related to PRSUs awarded in fiscal 20162018 (for the three-year award cycle from fiscal 20162018 through fiscal 2018)2020) and fiscal 20172019 (for the three-year award cycle from fiscal 20172019 through fiscal 2019)2021) will not be issued until the Compensation Committee certifies performance results for the fiscal 20182020 and fiscal 20192021 performance periods.periods, respectively. Shares of Common Stock issued in December 2019 to NEOs for the PRSUs awarded in fiscal 20152017 (for the three-year award cycle from fiscal 20152017 through fiscal 2017)2019) and vested in fiscal 2019 are set forth in the following table:below:
| PRSU Settlements |
| | | | | |
| | Shares Earned | |
| Name | Fiscal 2015(1) (#) | Fiscal 2016(1) (#) | Fiscal 2017 (#) | Total Shares Issued (#) |
| Gregory E. Hyland | 0 | 34,798 | 34,083 | 68,881 |
|
| Evan L. Hart | 0 | 9,795 | 9,594 | 19,389 |
|
| Keith L. Belknap | 0 | 6,959 | 6,816 | 13,775 |
|
| Gregory E. Rogowski | 0 | 9,395 | 9,202 | 18,597 |
|
| Marietta Edmunds Zakas | 0 | 4,697 | 4,601 | 9,298 |
|
| | | | | | | | | | | | | | | | | |
(1)Year of Award | See the definitive proxy statements we filed with the SEC on January 15, 2016 and December 15, 2016, respectively, for information concerning target RONA performance and actual RONA performance for the 2015 and 2016 performance periods.Performance Period | | | | | |
| Fiscal 2017 | | Fiscal 2018 | | Fiscal 2019 | | Fiscal 2020 | | Fiscal 2021 | |
| Fiscal 2017 | |
|
| Vested 2017 PRSU Awards (3 Tranches) |
|
|
| | | | | |
| Fiscal 2018 | |
|
|
| Future Vesting of 2018 PRSU Awards
(3 Tranches) |
|
| | | | | |
| | | | | |
| Fiscal 2019 | |
|
|
|
| Future Vesting of 2019 PRSU Awards
(3 Tranches) |
| | | | | |
Time-Based Restricted Stock Units
As described above, a portion of an executive’s long-term incentive
| | |
| PRSU SETTLEMENTS OF FISCAL 2017 AWARD |
| | | | | | | | | | | | | | |
| Performance Periods | | | Total Issued Number of Shares |
| Fiscal 2017 | Fiscal 2018 | Fiscal 2019 | |
| Name | Number of Shares Earned(1) | | | |
Scott Hall(2) | 19,012 | | 25,797 | | 12,205 | | 57,014 | |
| Marietta Edmunds Zakas | 5,027 | | 6,821 | | 3,227 | | 15,075 | |
| Gregory S. Rogowski | 7,189 | | 9,755 | | 4,615 | | 21,559 | |
(1)See the definitive proxy statements we filed with the SEC on December 14, 2017 and December 13, 2018, for information concerning target RONA performance and actual RONA performance for the 2017 and 2018 performance periods, respectively.
(2)Mr. Hall's PRSUs were awarded on January 23, 2017 for the fiscal 2017 through fiscal 2019 award value has historically been awarded in the form of time-based RSUs. cycle.
36 MUELLER WATER PRODUCTS, INC.
TIME-BASED RESTRICTED STOCK UNITS
For fiscal 2017, 50%2019, 30% of each NEO’s target long-term incentive compensation value was awarded in RSUs. The Compensation Committee approves a dollar value for these awards and its compensation consultant calculates the number of RSUs that equals thatgranted was equal to the compensation value, baseddivided by the price of our Common Stock on the grant date stock price.of award. Typically, one-third of the RSUs granted vest on each anniversary of the grant date. See “Executive Compensation — Grants of Plan-Based Awards Table”.Table.”
Timing of Equity AwardsTIMING OF EQUITY AWARDS
While the Compensation Committee may grant equity-based awards at any of its scheduled meetings or by unanimous written consent, it generally grantsestablishes awards for executives at its November or December meeting each year, except for awards related to promotions or new hires. Grants approved during scheduled meetings become effective and are priced as of the date of approval or as of a pre-determined future date based on a date of hire. Grants approved by unanimous written consent become effective and are priced as of a pre-determined future date. All stock options have a per-share exercise price equal to the closing stock price on the NYSE on the effective date of the grant.
Other Cash and Equity Awards
Mr. Hall’s employment agreement provides for an initial long-term incentive opportunity valued at $1.5 million on the date of grant, comprised of (i) 50% in RSUs that vest ratably over three years and (ii) 50% in PRSUs vesting, to the extent earned, at the end of fiscal 2019. The awards for the fiscal 2017 performance period are not pro rated.None.
As an offset for forfeited performance and equity awards under Textron’s incentive plans, Mr. Hall was granted 56,069 RSUs, as determined in accordance with his employment agreement. These RSUs vest in full on the first anniversary of the commencement of Mr. Hall’s employment.
In May 2017, we entered into an agreement with Mr. Rogowski that will provide him with a lump sum payment of $550,000 in cash, provided he remains employed with the Company through February 16, 2020. The award is forfeited if, prior to such date, Mr. Rogowski’s employment is terminated by the Company with cause (as such term is defined in his employment agreement) or by Mr. Rogowski for any reason. If Mr. Rogowski’s employment is involuntarily terminated prior to such date by reason of death or disability, a pro rata portion of the cash award would be payable.
Retirement Benefits
We offer retirement benefits to our NEOs and other employees to provide a competitive source of retirement income. These retirement benefits are provided through the vehicles described below.
Retirement Savings Plan Applicable to Employees GenerallyRETIREMENT SAVINGS PLAN APPLICABLE TO EMPLOYEES GENERALLY
The Mueller Water Products, Inc.Group LLC Retirement Savings Plan is a 401(k) plan that provides retirement benefits for our non-union employees and those of our participating subsidiaries. Each of our NEOs participated in the plan in fiscal 20172019 on the same basis as our other eligible employees.
Deferred Compensation Plan
Mr. Hyland is the only NEO who participates in a deferred compensation plan. He participates in an unfunded deferred compensation plan (the “Retirement Plan”), pursuant to which we credited a bookkeeping account for him, commencing April16, 2007 and each calendar month thereafter through September16, 2010, with an amount equal to 10% of his then current monthly base salary. The amounts credited to the plan bear interest at 120% of the long-term Applicable Federal Rate (as defined in the Code) until payment. At September30, 2017, $663,814 had been accrued and credited to Mr.Hyland’s deferral account. No further accruals will occur to the account, except for interest. Our fiscal 2017 interest accruals to the plan for Mr.Hyland were $19,754.
Upon termination of his employment with us, other than for cause, all deferred compensation under the Retirement Plan will be paid as a lump sum to Mr.Hyland.
Other Benefits
PerquisitesPERQUISITES
We provide certain perquisites to theour NEOs that the Compensation Committee believes are reasonable and consistent with itsour overall compensation program. In fiscal 2017,2019, the Compensation Committee offered the NEOs limited perquisites, including a car allowance (excluding Mr. Cofield), life insurance, supplemental long-term disability insurance and reimbursement for certain financial planning and annual physical examination expenses. See “Executive Compensation — Summary Compensation Table -— All Other Compensation”.Compensation.”
Severance BenefitsSEVERANCE BENEFITS
Each NEO is entitled to severance benefits. See “Executive Compensation — Potential“Potential Payments Upon Termination or Change-in-Control”.Change-in-Control.”
Change-in-Control AgreementsCHANGE-IN-CONTROL AGREEMENTS
Change-in-control agreements are used to create incentives for executives to build stockholder value and to seek the highest value possible for stockholders should we be acquired, despite the risk of losing employment. Our change-in-control agreements for executives provide for vesting of outstanding equity-based awards and payment of severance amounts upon a change-in-control and operate with a “double trigger”for severance payments and equity awards, meaning severance payments and accelerated vesting of equity awards do not occur unless the executive’s employment is involuntarily terminated (other than for cause or for termination for good reason) within 24 months following a change-in-control. The Compensation Committee believes this structure strikes an appropriate balance of incenting executives without providing benefits to executives who continue to enjoy employment with an acquiring company. The Compensation Committeeagreements also believes this structure is more attractive to potential acquiring companies that may place significant value on retaining members of our executive team and may perceive this objective to be undermined if executives receive significant severance payments solely
upon the closing of such a transaction. The agreements for Messrs. Rogowski and Hart and Ms. Zakas provide for an additional payment sufficient to eliminate the effect of any applicable excise tax on severance payments in excess of any amount determined under 280G of the Code. We would not be able to deduct payments subject to the excise tax for federal and state income tax purposes. The agreements for Messrs. Hall and Belknap contain a “best-of-net” provision, so that, in the event excise taxes would be imposed on payments under the agreements, the NEO will, at his or her discretion, either (1) pay the excise tax without assistance from the Company or (2) have the payments reduced to an amount at which an excise tax would no longer be payable, based on which result is more favorable to the NEO on an after-tax basis.payable.
Employee Stock Purchase PlanEMPLOYEE STOCK PURCHASE PLAN
Our Employee Stock Purchase Plan (“ESPP”) provides all of our employees an opportunity to purchase Common Stock, subject to certain restrictions, through regular payroll deductions. During fiscal 2017, Messrs. Hart and Belknap were the only NEOs to participate in the ESPP.
Health and Welfare Benefits
HEALTH AND WELFARE BENEFITS
We generally offer group medical, dental, vision, life and long-term disability insurance in a flexible benefits package to all active U.S. employees, except as otherwise required by collective bargaining agreements. Employees are provided life insurance up to one times their base salaries at no charge, other than related income taxes, to the employee. For an additional charge, employees may obtain coverage of up to four times their base salary up to a maximum life insurance benefit of $1,250,000. NEOs participate on the same basis as other eligible employees.
Other Factors Considered by the Compensation Committee
Risk and Incentive Compensation
The Compensation Committee has conducted an assessment of our compensation policies and practices and does not believe these policies and practices are reasonably likely to have a material adverse effect on us. This assessment included a review of the risk profile of our compensation policies and practices for all employees. To facilitate its review, the Compensation Committee engaged its compensation consultant to review our compensation structure to identify design elements that might encourage excessive risk taking. The compensation consultant discussed its review and conclusions with the Compensation Committee. In conducting its review, the Compensation Committee noted several policies and practices that mitigate risk, including:
•Using multiple performance measures in annual incentive awards and capping payout levels;
•Maintaining the ability to reduce annual incentive awards, based on its independent judgment;
•Using multiple long-term incentive vehicles;
•Using overlapping multi-year award cycles in connection with performance shares and capping payout levels; and
•Maintaining stock ownership guidelines, an anti-hedging policy and a clawback policy.
Tally Sheets
The Compensation Committee regularly reviews “tally sheets” for each executive. The tally sheets contain information concerning prior years’ compensation, proposed compensation for the current year, outstanding equity-based awards (both vested and unvested) and various termination-of-employment scenarios. The tally sheets enableassist the Compensation Committee to view and evaluatein evaluating the many facets of executive compensation, understandunderstanding the magnitude of potential payouts as a result of termination-of-employment scenarios and considerconsidering changes to our compensation programs, arrangements and plans in light of emerging trends.
Wealth Accumulation Review
The Compensation Committee reviews “wealth accumulation” calculations, such as projections of how much stock an executive is projected to earn or accrue over time through cash and equity-based compensation or through certain benefits.
Other Compensation Practices and Policies
Role of Compensation Consultant in Compensation Decisions
The Compensation Committee has sole authority to select and retain a compensation consultant, including authority to approve fees and retention terms. For fiscal 2017,2019, the Compensation Committee retained Meridian Compensation Partners, LLC as its compensation consultant. The Compensation Committee reviews the performance of its compensation consultant annually.
In fiscal 2017,2019, the compensation consultant’s responsibilities included, but were not limited to:
•Providing recommendations regarding the composition of our Peer Group;
•Preparing and analyzing Peer Group compensation and plan design data;
•Reviewing and advising on the performance measures to be used in incentive awards;
•Valuing equity-based awards; and
•Reviewing and advising on principal aspects of executive and non-employee director compensation, including base salaries, bonuses and equity-based awards for executives, and cash compensation and equity-based awards for non-employee directors.
38 MUELLER WATER PRODUCTS, INC.
The Compensation Committee considered the independence of its compensation consultant in light of standards under the NYSE Manual.listing standards. The Compensation Committee requested and received a letter from the compensation consultant addressing its independence, including the factors described below:
•Other services provided to us by the consultant;
•Fees paid by us as a percentage of the consultant’s total revenue;
•Policies or procedures maintained by the consultant that are designed to prevent a conflict of interest;
•Any business or personal relationships between the individual consultants involved in the engagement and a member of the Compensation Committee;
•Any Common Stock owned by the individual consultants involved in the engagement; and
•Any business or personal relationships between our executives and the consultant or the individual consultants involved in the engagement.
The Compensation Committee took into account these considerations, along with other factors relevant to the compensation consultant’s independence from management, and concluded the compensation consultant is independent and the engagement of the compensation consultant and the services rendered by the compensation consultant did not raise any conflict of interest.
Role of Management in Compensation Decisions
The Compensation Committee reviews information provided by its compensation consultant and uses that information as a reference point for the components of compensation. The Compensation Committee and the Chief Executive Officer discuss the financial metrics and operational goals intended to closely align performance targets of the business units and the Company as a whole with our strategic goals. The Chief Executive Officer makes recommendations to the Compensation Committee for executives other than himself with respect to annual salary adjustments, annual incentive adjustments and grants of equity-based awards under our incentive plans. The Compensation Committee makes the final decision with respect to the compensation of these executives, taking into consideration the Chief Executive Officer’s recommendations.
The Compensation Committee annually receives input from the entire Board with respect to the Chief Executive Officer’s performance and recommends his compensation level to the Board. The Board discusses and approves the annual salary of the Chief Executive Officer. The Chair of the Compensation Committee and another Compensation Committee member designated byNon-Executive Chairman of the ChairBoard meet with the Chief Executive Officer to discuss the Chief Executive Officer’s performance and compensation based on evaluations received from the Board. These discussions are considered by the Compensation Committee in setting all elements of compensation for the Chief Executive Officer.
In fiscal 2017,2019, the Chief Executive Officer was present at all of the Compensation Committee meetings but was excused from the executive sessions of the Compensation Committee and did not participate in meetings or deliberations during which his compensation was discussed.
Income Tax Consequences of Executive Compensation
Our compensation programs were designed to permit us to deduct compensation expense under Section 162(m) of the Internal Revenue Code, which historically limited the tax deductibility of annual compensation paid to executives to $1 million, unless the compensation qualified as “performance-based.” The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed (subject to certain transition rules), effective for taxable years beginning after December 31, 2017, such that compensation paid to our NEOs in excess of $1 million is generally deniesnot deductible. As a corporate taxresult, we may no longer take a deduction for annualany compensation exceeding $1 million paid to our NEOs (other thanin excess of $1 million. The Compensation Committee believes stockholder interests are best served by not restricting its discretion and flexibility in structuring compensation programs. In fiscal 2019 and in plans for fiscal 2020, the CFO). The limitation does not applyCompensation Committee continued to design compensation based on achievementprograms and make grants that it believes are performance-based and well aligned with the interests of pre-established performance goals if certain requirements are met. Theour stockholders.
Previous grants made under the 2006 Stock Plan, and the PRSUs granted thereunder, as well as the annual cash incentive award, arewere structured and were intended to permit such awards to qualify as performance-based“performance-based” compensation to maximize the tax deductibility of these awards. Theseawards under Section 162(m). Those awards may not be fully deductible under all circumstances, as a number of additional requirements must be met for the awards to qualify as performance-based“performance-based” compensation. In addition, the Compensation Committee believes stockholder interests are best served by not restricting its discretion and flexibility in structuring compensation programs, even though such programs may result in certain non-deductible compensation expenses, and therefore, it reserves the discretion to award compensation that is not exempt from the deduction limits of Section 162(m).
Compensation Recovery (Clawback) Policy
OurNEOs with employment agreements contain a provision requiring the employee,are required, to the extent required by law, to reimburse us following the publication of a restatement of our financial statements due to material noncompliance with any financial reporting requirement under the securities laws as a result of misconduct for (a)incentive-based or equity-based compensation received and (b)any profits realized from the sale of our securities in each case during the 12 months prior to discovery of the noncompliance. The Compensation Committee has exclusive authority to interpret and enforce this provision.
The Compensation Committee has adopted a “Clawback Policy” to recover pay that is determined to have been wrongfully earned by managerial or executive employees, including our NEOs. As a result, all RSUs granted after November 30, 2009 include a clause that reduces the number of equity-based awards upon the occurrence of certain events. The Compensation Committee has the exclusive authority to interpret the Clawback Policy, and may offset compensation as necessary to recover amounts due under the Clawback Policy.
Prohibition on Hedging and Pledging
We do not allow directors or employees to hedge the value of our equity securities held directly or indirectly by them. Our policy prohibits the purchase or sale of puts, calls, options or other derivative securities based on our securities, as well as hedging or monetization transactions, purchases of our equity securities on margin and borrowing against any account in which our securities are held. We prohibit pledging of Common Stock by executives or directors.
Stock Ownership Guidelines
The Compensation Committee has adopted stock ownership guidelines to promote a high level of stock retention among executives and non-employee directors. The guidelines require that the total value of the executive’s or non-employee director’s holdings of Common Stock must equal or exceed the specified target value shown below.
|
| | | | | | | |
| Position/Title | | Target Ownership | |
| Chief Executive Officer and President | | 6 x6x base salary |
| Executive Vice Presidents | | 3 x 3xbase salary |
| Senior Vice Presidents | | 2 x2x base salary |
| Non-Employee Directors | | 5 x5x annual retainer |
All NEOs and directors are in compliance with our stock ownership requirements. Our stock ownership guidelines are available on our website. Seewebsite at www.muellerwaterproducts.com.
Report of the Guidelines for more detail.
REPORT OF THE COMPENSATION AND HUMAN RESOURCES COMMITTEECompensation and Human Resources Committee
The Compensation Committee participated in the preparation of the Compensation Discussion and Analysis. Based on its review and discussions with management, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
See “Corporate Governance— Board Operations“Board Structure — Board Committee Information” for information concerning the Compensation Committee and its responsibilities.
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| Compensation and Human Resources Committee |
Michael | MICHAEL T. Tokarz, ChairmanTOKARZ, CHAIR |
Shirley | SHIRLEY C. FranklinFRANKLIN |
Jerry | JERRY W. KolbKOLB |
40 MUELLER WATER PRODUCTS, INC.
